Financing

Without any doubt, blockchain technology has the potential to revolutionize construction financing, given that it carries the underlying principles of cryptocurrencies, such as BitCoin. There is much talk that blockchain technology will shape and stand for modern finance. Or according to Harvard Business Review: “The Blockchain will do to the Financial system what the internet did to Media”.

In the light of that, blockchain will impact construction not only through smart transactions, which follow smart contracts, but also through a massive digital and completely decentralized financial system for construction. As it is distributed, blockchain resists changes and systems failures or attacks. Once again, blockchain technology has the potential to democratize construction and particularly financing in a bottom-up rather than top-down approach by supporting peer-to-peer activities of small-scale actors.

The long term financing of infrastructure and construction is based upon a combination of the projected cash flows of the project, the use of the building and the relative strength of the balance sheets of the developer and contractors.

Finance can be by equity investors, or syndicates of lending institutions. Security over the assets is often factored into the equation. Techniques often used include special purpose vehicles, limited recourse financing and securitisation.

Blockchain can be used in both the fundraising ( ie by crowdfunding through token sales in an ICO [Initial Coin Offering] and the governance of the fundraising body, thus encouraging international bodies such as the World Bank to invest in infrastructure projects. An example would be by the use of a DAO [Distributed Autonomous Organisation], which could also be used for project and site assembly as well as continuing asset management during the life of the building.

Further use of blockchain can be envisaged in payments, risk management and authentication. This would introduce substantial access to funding for major projects in cities and countries where barriers currently exist, which would result a dramatic improvement of people's lives around the world.

Keywords

Building Economics, Construction financing, Smart transactions