How Blockchain is Shaping Modern Urban Development
While cryptocurrencies may appear distant from the physical infrastructure of cities, they are increasingly finding their niche in urban landscapes. Let’s explore the fascinating intersection of blockchain technology and city planning.
Why Does the Real Estate Market Need Blockchain?
In 1882, the first stone of the iconic Sagrada Familia was laid in Barcelona. Antoni Gaudí, its visionary architect, tragically lost his life in a tram accident in 1926. Mere years later, his workshop was ravaged during the Spanish Civil War. Since the project was heavily reliant on church donations, the war dramatically depleted its funds, halting its progress. Over the next decades, while geopolitical changes like the division of Korea took place and the U.S. witnessed 26 presidential terms, the construction of the Sagrada Familia continued. The world has watched this architectural marvel slowly rise, and now, the Sagrada Familia Foundation is ambitiously targeting its completion by 2026.
Yet, the global construction landscape is dotted with numerous unfinished projects, emblematic of the sector's inherent challenges. In China, many have been waiting for their homes for over a decade. Meanwhile, certain buildings risk being torn down if the overseeing firms fail to balance their debts or if properties are slated for urban renewal. Contrastingly, Malaysia has its own set of ghost skyscrapers, with a staggering value of $100 billion, constructed by China's Country Garden. Financial scandals have also cast shadows. Notably, when the Chinese government revised its developer financing policies in July 2020, Evergrande's shares plummeted by 99%, wiping out a whopping $47 billion in investments and intensifying the country's property sector crisis.
South Africa presents another facet of challenges, grappling with financial constraints and an overabundance of new builds. Approximately 30% of its financially active populace struggles to purchase new homes. Yet, local developers remain hopeful, expecting fresh influxes of buyers to fuel their ventures. Regrettably, not all undertakings in construction are legitimate. Some unscrupulous individuals have used the sector as a front for money laundering. A high-profile incident involved the arrest of the African influencer, Hushpuppi, with a follower base of 3 million. He was accused of a $1.1 million scam, deceptively presented as funding for a Qatari school project. More sophisticated frauds involve the use of neural networks to forge digital documents, allowing culprits to unlawfully sell properties online.
In 2022 alone, the FBI recorded damages of $400 million from 11,727 real estate fraud incidents. Chicago has been embroiled in real estate controversies for over two years, with five significant scandals involving bribery, extortion, and blackmail. These scandals have ensnared politicians, attorneys, and major construction entities. A standout case from 2008 saw the FBI investigating Chicago's primary land office, where they uncovered a syndicate of 23 government officials operating on a "pay-for-permit" scheme.
These events unfold within the backdrop of a housing crisis. The challenge is not so much a lack of housing, but its affordability for the average person. Many Americans, even after purchasing homes, find themselves financially stretched. Approximately one in eight Americans dedicate between 30% to 50% of their monthly income to housing costs, either as rent or mortgage payments. Nearly a quarter of U.S. homeowners struggle with the increasing costs of homeownership. Meanwhile, 11 million renters find savings elusive as high rents consume about half of their incomes. Habitat.org reports that 32% of U.S. households are overextended on rent. This issue isn't exclusive to the U.S.; nations like Taiwan, Thailand, Japan, and Canada face similar housing challenges. This is evident in the surge of YouTube content detailing the rental problems in these areas. Adding to the housing dilemma is the industry's hesitancy to build affordable housing, primarily because older properties continue to see a rise in value, sometimes at an accelerated rate.
Beyond the end-stage challenges of property ownership transfer or sale, there's a deeper problem rooted in the initial phases of construction: a significant lack of transparency and accountability. This is where blockchain technology can offer a solution.
How can blockchain address the construction industry's challenges?
Collectively, issues in the real estate sector fall into one of four categories:
- Lack of Transparency: This is the central concern when pouring investments into real estate. Due to the murky processes in construction, financial costs can unexpectedly escalate, often manipulated by dishonest developers. Pinpointing these irregularities is tough. A common deceptive tactic used by builders is subtly "tweaking" the cost of materials, sometimes by mere pennies.
- Inefficiencies in Cash Flow Management: As history suggests, construction projects are prone to overshooting their initial timelines and budgets. This becomes a significant concern for investors, shareholders, and prospective buyers. They expect a timely return on their investment. While construction firms might profit from extended projects, all other stakeholders find themselves trapped in an unfavorable situation.
- Document Overload: In addition to construction and management, every property venture demands soil condition certificates, results from geodesic assessments, quality evaluations, and numerous clearances from notaries, legal professionals, and various authorities. In this space, bribes sometimes emerge as a lesser evil, helping to hasten the process of securing the necessary paperwork.
- Middlemen Galore: While a substantial portion of construction tasks is handled by intermediaries, this opens the door to "sub-subcontracting". Here, primary contractors might exploit the cost disparity between their charges and the actual job expense. Such tactics inject unforeseen risks even before laying down the foundation, casting doubt on whether a more affordable contractor will deliver enduring quality.
The defining feature of blockchain is its immutable nature; once information is entered into the chain, it's permanent. This quality acts as a significant deterrent to the common malpractices of bribery and influence often observed in the construction sector. The added benefits include the potential integration of smart contracts and the ability to securely manage data in a typically distrustful setting.
Here's how blockchain can enhance construction:
- ПTransparent Supply Chains: With blockchain, every step of a construction material's journey, from production to site deployment, can be logged and monitored. For cement, for example, its quality, production date, composition, manufacturer, cost, and application in construction can be chronicled in the blockchain.
- Real-time Certification: Once materials are documented, they can be instantly certified. These verifications are added to the blockchain, serving as potential triggers for smart contracts.
- Reliable Escrow Mechanisms: Smart contracts, backed by blockchain, can act as a secure payment gateway, releasing funds to contractors only when specific, verifiable milestones are achieved.
- Accountability Tracking: If any substandard material is used, its entire delivery chain can be traced through the blockchain, identifying the party at fault, whether it's a supplier, transporter, or manufacturer. This also facilitates the oversight of subcontractor engagements.
How does blockchain tackle the challenges of construction and urban administration?
Since 2019, SiteSense by IntelliWave Technologies has combined the steadfastness of blockchain with the integration of GPS sensors, RFID tags, and IoT devices. In practical terms, a worker inputs information into a tablet, which the system then cross-references with sensor outputs. Materials, equipment, and components are tagged with RFID, feeding data to the blockchain. SiteSense archives all transactional data, associated purchases, and related documentation in a private blockchain, accessible to any number of stakeholders.
In 2018, Nokia introduced software for smart city management, anchored in blockchain technology. The concept is built around a data network from IoT devices, enabling cities to be analyzed in real time. This offers insights into illicit constructions, instances of waste burning, or unusual airborne particles. Will this find its footing in the future? As per analytics company Memoori, in 2023, the market for IoT devices stood at $53 billion, projected to climb to $100 billion by 2028.
The French startup, Bimchain.io, offers a blockchain-based solution for BIM - a method for producing realistic 3D construction plans. BIM software accounts for the estimated costs, required materials, and the timeline of participants involved in a project. Here, the challenge addressed isn't just management, but firmly anchoring a unified design blueprint in the blockchain. This can be immediately audited or inspected, streamlining collaborative efforts as all project members are instantly informed of any changes.
Dubai's government is steering towards comprehensive digitization. Today, it's feasible to cross borders without a passport by leveraging biometric data combined with blockchain, an initiative known as the Emirates ID. Similarly, in Yinchuan, tickets, passports, and other travel documents are transitioning to digital formats, with individual identity verified through digital facial scans.
Is blockchain the magic bullet for the industry?
While blockchain has its set of challenges, it could very well redefine transparency in the sector. It might not directly reduce rent costs, but it offers the potential for transparent housing management and innovative building solutions.
