Transcript: Presentation: Using Blockchain to Unlock the Value of Platforms

Hello and welcome to the Constructor Podcast, The Best Way to Build It, episode number 98. I'm your host, Brittany Campbell-Turner. This podcast is dedicated to helping property owners have certainty in their decisions about their construction projects. We talk about fostering trusting relationships, help you to understand how to lower risk, be under budget and on schedule, and most importantly, exceed your end user's desires. In last week's episode, we spoke with Scott Muldaven, president of the Muldaven Company.

We discussed the intersection of financial modeling for your deep retrofits and healthy real estate investments. Companies are under investing in energy efficiency and sustainability, hurting their profits and competitive position. Healthy building investments create financial benefits that can be calculated and represented as part of a company's normal investment due diligence using traditional financial analysis techniques. So Scott and I discussed how to improve real estate decisions to achieve greater profits, investment returns, and operating efficiency. We talk about deep retrofits, value beyond cost savings, and the framework of the Well Building Institute standard, which he participated in developing.

If you haven't listened to that episode yet, check it out at constructor.com slash EP 97. Today you are going to be hearing my presentation with the Mechanical Contractors Association when I spoke at their engineers' luncheon. I spoke at their Tech Day conference earlier this year and had a great time. Fortunately, I got invited back to speak and share with the engineers. In this talk, I discuss the changing age we're in, one that is meant to take advantage of the network platform economic model that is affording companies to grow in valuations beyond any financial analysis expectation.

One where our interactions can create a knowledge asset platform for us to better resource our projects with the right engineering talent. Where engineering talent and organizations can access more profits by becoming a knowledge asset platform. We can take advantage of network platforms through blockchain communities. And I discuss how that can take place and how the projects I'm involved with can demonstrate just that. With that, take a listen.

So this is blockchain for engineers, the MCA blockchain edition, hashtag MCA blockchain. The agenda for today is a new age of ecosystems. What is blockchain exactly? We're going to run an application specific to design and the asset lifecycle, and we're going to run through some specific use cases. I studied architectural engineering and construction engineering and management at IIT.

I am the founder and managing director at Constructor, and you can find me at constructrr.com. I'm also a construction project manager at MACE and part of the steering committee at Construction and Blockchain Consortium. I'm also one of the co-founders at Co-Engineers, also working on my own blockchain project name to be determined soon. So that's me. So engineers have a really interesting perspective on the construction industry.

Obviously, I work in the AEC realm, and I think that we have a lot of opportunity to take advantage of the data that we're creating. And we're not exactly at the point where we're able to take the knowledge that we have and cross-connect, really network based upon the different types of projects that we're utilizing, unless it's internal to our companies. Let's just start talking a little bit about the new age and some of the future thinking that we should have around ecosystems. Decentralization is now paramount in innovative organizations.

If we look at, for instance, the most known news medium, it's Facebook, and no one owns the news medium per se. is being captured from all over the world. And that's where a lot of people utilize as their news medium to learn about things. Same thing with YouTube. There are many contributors to the YouTube platform is decentralized.

People can spend hours and hours on their learning about things. Uber, the company doesn't own the cars itself. Airbnb, no one owns the real estate itself. Even WeWork doesn't actually own the facilities that they're renting out. So these innovative companies that are booming, they're decentralized in nature.

And I think that's what we're moving towards in many different ways. Even within the military, I've actually went to the Lean Construction Institute Congress, I think it's a couple of years ago, and heard Chris Fusil from the McChrystal Group. He was talking about how he was working with General McChrystal and how they were 100% meeting their missions, all the goals within them. However, people were still dying. Okay, so what's up with that?

They had to change their approach. And I was, Al Qaeda was sharing the information too quickly amongst each other. They had a decentralized network of communication. And what had to take place within the military itself, they had to move to a team of teams network in order for that communication to take place within their internal groups, in order for them to actually defend themselves. Essentially why they became successful, and you can learn more about McChrystal Group, I think right now what they're doing is they're supporting organizations in order to build leadership capability within them.

But as you can see, the more and more a network becomes more decentralized, the more adaptive they can become. So the biggest existential threat to any AEC incumbent is that it might be disrupted by some way of reorganizing engineering and architectural talent that decentralizes it. That's a pretty strong statement from Jackie Hedman, CH2M Hill. I don't think we've ever really thought about decentralization in this industry. I think it's a really new idea.

How many of you have thought about what that might look like to replicate Uber or Airbnb in this industry? Yeah, no one. I know it's difficult to even conceptualize. So that being said, I think we need to start thinking about what that looks like. So first, I'm going to talk about what is blockchain?

After talking with a couple of you beforehand, you have probably a good foundation. But for some of you who may not, let's just start from the beginning and get that baseline going. So blockchain adoption, worldwide venture investment in blockchain and blockchain adjacent startups is upwards to $1 billion of investment as of 2018 in February. What's really interesting about the investment, though, is that a lot of these companies are being valued. They have valuations of millions of dollars, and they're just in beta phase.

They don't even have a working software in use, and the valuations are extremely high. From Accenture, they say a banking industry assessment determined that the use of blockchain technology could reduce the cost of transactions about 30 percent. That's a lot of cost savings. Imagine that in construction. Just because of efficiencies, right?

We've seen that technology adoption rates are accelerating. The number of years to reach 50 percent user adoption is reducing. And you can see from 31 years all the way down to 3.5 years for social media. Now I really like this diagram, but it doesn't tell us a whole lot, I think. This is just perceptions.

This is trends. What it is is the Gartner's hype cycle, and it talks about what the amount of time is in order for some of these emerging technologies to be adopted. Now you'll see, for instance, artificial general intelligence and biotechnology. A couple of these things are going to take more than 10 years, and that's to be expected. Brain-computer interface.

Now as far as blockchain goes, the Gartner's hype cycle is saying 5 to 10 years. Now based upon what I've been studying for about 12 months, I think it really will be a lot faster than that, because there are companies who are on the rise. What's really interesting is that there are companies, tech companies, who are able to buy new, or I should say, older technology companies simply because they are rising so fast based upon what they're capable of doing. So again, what is blockchain? Blockchain fundamentals.

Blockchain is simply a shared record book of transactions called blocks that are sequenced together in a chain. Those who have access to said record book are able to validate transactions and to add records but not able to modify any existing records. So how does it work? One party requests a transaction, requested transactions are funneled into a peer-to-peer network and broadcast to each individual computer or node. So imagine all different computers are set up for the process of doing this validation process.

So nodes receive the request and validate the transaction using an algorithm and approved transactions are represented as blocks and added to a public ledger. And essentially that's what then completes the actual transaction. So consensus is something that is really important within this transaction process. Every computer or node verifies that the transaction is approvable. It validates on consensus.

For those of you who know about Bitcoin, which is where people mostly know about blockchain from, it requires 51% of the computers to have to agree to that particular transaction. However blockchain is not Bitcoin. While it's true that blockchain provides an underlying technology, it helps cryptocurrency exchanges, the reality is that potential uses for blockchain are far broader than digital currencies, which is why I'm really excited about it. The real reason why I'm excited about it is the notion of smart contracts. This handshake, this agreement is not typically easy for computers to actually do.

But what blockchain allows for this actual action to happen digitally. With smart contracts, what it does is the ledger can actually incorporate a set of promises or conditions of satisfaction specified in a digital form, including protocols within the parties who are performing on these promises. The business logic is really composed of actions and data associated with those actions. They actually make up the smart contract. So I'm going to stop here.

How many of you still have curiosities or just like a gap as to what blockchain is? Yeah? One, two, three, four, five, six-ish. Okay. Now I know you're eating, but would one of you volunteer to come up just so we can do a really quick demonstration here?

Okay, great. Thank you, Brian. All right. Nice to meet you, Brian. Hi, nice to meet you.

Actually, let's make it so everyone can see. All right. So blockchain works like this. All right. So you came up here and so you're going to get a reward, but the reward is $10.

Okay? Did all of you see that $10 transaction? Yeah? Okay. So let me raise your hand if you saw that.

All right. So we have consensus. All right. So all of you are verifying that this transaction has taken place. All of you are knows that understand that, okay, yeah, I can verify that I saw this transaction take place.

That's essentially what blockchain is. Now if I had a further set of promises that Brian needed to actually fulfill in order for this transaction to take place, all that is is a smart contract. The set of promises tied to the transaction. So like if I was going to give you this plan for the $10? This is the set of promises.

I agree. Yes, this has been provided. I'm checking it off. I'm verifying it on the network and therefore automatically this transaction will take place. I don't actually have to hand it to you.

The set of conditions is going to automate that transaction to take place. But does this like sit in limbo before? That's right. Both pieces sit in limbo and then? Yes.

What transpires is these nodes, they all within the network systematically on a digital ledger and they have a timestamp for each time it's verified, each person or each node goes ahead and says, yes, I agree. This particular condition is satisfied. Yes, it's satisfied. Yes, it's satisfied. Up to whatever that consensus number is that's agreed upon based upon that protocol.

Then once that's happened, then the automated transaction completes. Does that help? It does. OK. Awesome.

I'll have questions later. That's good. Not mine, they're kind of bad. OK. OK.

So hopefully that made it a little bit more simple. Yeah, what's up? One question. You just mentioned that it's going to be one percent. How many peers do you have to meet to even create a pool of viewers?

As many as you decide in the protocol. So you can site five? Absolutely. Absolutely. So there's this notion and I haven't really built this into this presentation, but there's a notion of public blockchains versus private blockchains and permission blockchains.

OK. So Bitcoin is a public blockchain. Ethereum is a public blockchain. Ripple is a public blockchain. Everyone can see any of the transactions on those blockchains.

There's something called cryptography. You are identified by a public number or that cryptographic key, and you're identified by a private cryptographic key. What that allows for you to do is essentially use that to do the transactions. And in addition to that, do the verification process. So say for instance, I wanted to do that transaction with you.

I would need to know your public key. You would need to know your private key to do whatever that part is that you're doing. And then it comes out of the block and allows it for it to hop back onto the chain in order for it to go on to the next node in that network. So present needs and challenges that blockchain actually provides some help with. It provides help with structured documentation of data and transactions.

I talked about cryptography. This is another unique identifier. It creates a unique hash per each item. So you can identify what that verifiable transaction is by a unique number. It has an open ledger.

Anyone can access that information and it's precise. There's always a timestamp associated with it. It improves tracking the record ownership and governance. So obviously data being tied to the blockchain, it's never going to change. It's immutable.

So over time, everything that you put up there, it sticks. If there's a problem, if there's a change that needs to be made, it's still there. And what it will do is track the change if you have to make it at a later time. It allows for sign-offs on deliverables and it's clear and immutable, automated verification processes. Any document diligence that needs to take place.

It reflects KPI progress, tracking, auditability. It also provides the need for strategy assessments and performance review against larger data sets. We'll get into that in a little bit, but it allows for more useful benchmarking. Deliverers promise deliverables. All parties have the same version of reality on an open ledger or a common data environment.

It reduces the risk to corrupt because it is decentralized. There's no one database that holds the information. It's decentralized. Each peer holds the database information, so everyone owns it. So we're going to jump into some design specific applications.

All right. So here are two existing companies that are in the blockchain space. One is called Singular DTV. This particular company is for artists and it allows for artists to develop whatever they create, whether it be music or movies or whatever it is, to have their intellectual property tagged to them at all times so that they, whenever they do any transaction, even if somebody wanted to steal it, that IP is always attached to the person who created it so they will always get what is due monetary wise.

Kodak coin. We don't see a whole lot about Kodak these days. They have a coin which essentially does the same thing for photography. So particular to design, we have a lot of criteria that we need to meet. Obviously I have Asher here, OSHA, ISO, IEEE, things like that.

There's a lot of need to ensure that requirements are met in this particular industry because of the compliance. Blockchain can allow for those conditions, if you were to put those conditions on the smart contract, to meet those standards. Now this is something that is just, I would say, a potential right now. I would say that AI is something that we would have to integrate with in order for something like this to take place. But if you have the idea of having someone associated with their IP that's tracking a design or some specific, you know, even like patent or something like that, blockchain is something that can allow for it, I think probably in five to ten years to impact design.

Okay, so specifically, there have been standards that exist. The company I work for, Mace, because they're based in the UK, I've become more and more familiarized with the COBE standard in their UK contracts. Building information exchange and then the building programming information exchange in order to meet the governance setup and in order to have those specific pieces of decisions made at an interval that makes sense in order for lean methodologies to be pulled into it. I do think that this is also a potential opportunity for design.

Other potential opportunities are, like I mentioned, code compliance, depository of who's done that particular design decision and who's done it right or wrong, which is kind of scary, to be completely honest. But what it also allows is it gives you faster access to justice. Okay, so if there is a need for any dispute resolution, it can pinpoint more easily who is really responsible and accountable for whatever design decision they have made. And obviously, because everything is recorded, it allows for that benchmarking not only to take place, but in addition to that, allows for lessons learned and improvements on design moving forward.

Also, potentials, inspections and commissioning. Now, the integration of blockchain with other technologies, in my opinion, is really where I see this industry really taking advantage of blockchain. When you combine the ideal of Internet of Things, humidity, temperature, vibration, engineers measure and can verify that the data that we're collecting is meeting the requirements, whether through inspections or commissioning requirements. That's something that we can track on the blockchain. And you don't actually have to go and do your measurement because you're using these sensors that we already have available to us to ensure that it's meeting those requirements.

Already mentioned BIM and AI matching design scans when the building or whatever your building is completed and it can mirror back to what your requirements are, how it's built into the blockchain database. Now, how many of you have heard of SmartVid.io? They've been focused on safety. They do a little bit more than that. But the thing that jumps out at me is what they do to track safety instances.

Essentially, what they do is they do reality capture on project sites and they use AI to assess what's happening on the site and flag any particular instances. So say, for instance, someone's not wearing a hard hat, they will count how many people are not wearing a hard hat that are working on the site. They will count how many people who should be wearing gloves are not wearing gloves. They will count even progress on the job site. And this is all using AI.

This is an existing software that's being utilized right now. Having that combined with a data tracking system like blockchain in order to identify issues that are related specifically to how something is being built in place and being able to match that up with what we're looking at at our BIM model, even if we were to use virtual reality or augmented reality and have that comparison in real time. That's the opportunity that we have with blockchain. Again, I think it's going to take some time. These are things that I think because of the technologies that already are in play, it will definitely be something that changes the game.

Warranties can be built into the smart contracts as well. And we'll talk a little bit more about that. But essentially, if there's any subcontractor warranties you can build in, if the light's going to go out, you can make sure that in a smart contract, a service contract, you can have them ping the subcontractor immediately and say, well, you're under warranty, one-year warranty. Your service contract with this company is already set in place. You automatically need to come out.

Let's just schedule the date. And then once they fix it with IoT sensors, you can know that it's been fixed. And depending on what the issue is, of course, but you can go ahead and have that automatic payment sent right back out to them through the smart contract. Applications, asset lifecycle. Some of the key drivers for looking at the asset lifecycle or facilities management lifecycle is that globally, interest rates are low, lending is on the rise, and there's volatility to access these interest rates.

There is more and more of a requirement for meeting compliance standards. There's a requirement for reducing fraud risk. And we want to learn about the usage and habits of people who are occupying spaces so that we can inform our design even more so that companies—and I have a couple episodes coming out about this particular topic—so that we can get our return on humans. A lot of companies will talk about return on investment. Like, you know, I'm going to invest so much money into my facilities in order to get people to be more productive or more collaborative or use Scrum and things like that.

But there are other applications that we should be learning from about humans, about health itself, and well-being itself, whereby we can take that information and really incorporate it into design. So a blockchain digital commons for construction could result in the entire supply chain having a small part of a building income for the life of the building. Imagine the incentive to do a good job on this scenario. Break this statement down a little bit more. Because we have the opportunity in the near future, I would say five to ten years, imagine if our designs impacted the life cycle of the building and we could track how well it's doing so.

Not just from a commissioning standpoint, but from how we actually can impact operational costs. Even when we're getting ready to sell that asset, how much information does actually go to the new owner of the building, right? How do you actually now value that infrastructure? This is the type of information that can be tracked on the blockchain. People can, if we get this working right, one of the projects that I'm working on is working on this.

If we get this right, we can make sure that engineers get paid for what they do because they've reduced risk to that certain level. Somebody else may not in another piece of infrastructure. So that being said, we can do material tracking and verification, manufacturing warranties, vendor service. I talked about the light fixture going out, serial number, recalls for materials, resale or lease values. Actually, there are lots of people on real estate assessing how to utilize blockchain in real estate.

But what our engineering approach can do is really give indications as to what those resale values should be based upon how well something is designed. Energy trading, there's companies right now that are working on doing energy trading. It's just consumer based right now, but people will put solar panels on their roofs and do day trading based on the electricity that they are producing and storing it in a battery. If they're not there for that day and they're not going to use their electricity, they can sell it the day that they're not utilizing it to their neighbor.

There's plenty of investment opportunities as well. We can talk about that more in detail if you guys have questions on that. Creates more value for the conscientious owner. As it relates to someone who is an owner, let's just say for conversation purposes of the Willis Tower, for instance, they've been changing ownership quite a lot. If they wanted to be a conscientious owner, they could monitor not even just the current operations, but anything that they're planning on building into their space, not just from a sustainability standpoint from Lee, but like how are you actually providing something more valuable to the tenants that are moving into your space?

Then when you get ready to sell any part, like say they want to sell the Willis Tower again, how are they ensuring that their building is satisfying whatever needs to the next owner? If somebody wants to build something shoddy in their space, they can't do that anymore because it's being tracked. It gets people to think more conscientiously about what they actually do to their spaces. How many of you have heard of this building? The Edge.

It is in Amsterdam. This is actually one of the coolest buildings in the world. I have not found any other building that's just this cool. Why? There are a couple of reasons.

One, they use a lot of passive energy in this building, so they keep their costs down simply because of that. Number two, they have all of their electrical systems tied to not just a simplified BAS system, but one where it's tied to your preferences in your cell phone. I walk around and I want to work in a particular space, me as someone who's walking around in this building. As a matter of fact, let's start from when I drive up. When I drive up, the building recognizes that I've arrived.

It knows who I'm going to be meeting with, so it pings the person I'm going to be meeting with and says, such and such has arrived, Britney's arrived. What it asks me is, where do I want to meet this person because I don't have a specified desk. What it also does when I drive up is it orders my coffee just the way I want it. And so the concierge there, they go ahead and the canteen go ahead and starts preparing my coffee so I can just walk by and pick it up.

In addition to that, I have my lighting preferences attached to me in my cell phone. So if I want to sit down and work in a particular area that I prefer, the light levels adjust to me. The temperature levels adjust to me because those are my preferences. In addition to that, this building, they actually have somewhat of a co-working space, and there are lots of consultants who work here. Deloitte is just the major tenant.

It actually has a database where if I want to work with other consultants, it's like Dropbox, for instance, but I can have all my information accessible and give permissions to people in order to just go into my database for the things that I let them see, and they can go ahead and pull that information up. All of these things are backed by blockchain. The actual developer, OVG Real Estate, has been thinking of ways to really push the needle, and he's actually planning on building another building that is really progressing in the sustainability side of things.

But I'll tell you this. So the Briam profile, it can list all of the things, the same thing as LEAD. But the thing that pushed them is the connection to Internet of Things. That got them the highest rating in the Briam scale, and the next highest hasn't been built yet. But if you go to Amsterdam now and experience what they're talking about.

So let's get into some further use cases. So this is one of the projects that I'm working on right now. I'm highly interested in integrated contracts. I mentioned lean construction before, and what I'm working on with an actual health care owner to develop is an opportunity to build contracts more optimally through using blockchain. So what you'll see is there's some fields here that can be populated, but this is standard language for a particular contract.

What I'm doing is working on how to link this to then payment processing, to any other subcontracts, to whatever else that you need. So that's my project right now. Another company that is utilizing blockchain for supply chain is called IntelliWave. They're tracking material management. If you're ordering an air handling unit that's getting built from scratch overseas, you know exactly what's happening.

You know what humidity it's being built within. You know all those conditions are, and you can track all of these things. When it's being received, what the conditions are, when it's being stored, when it arrives to the field office, things like that. Actually even when it's built and if it's meeting the requirements, when it's built into the space. This one I find really interesting for engineers is actually a guy.

His name is Chris Dorian. He's out of Australia, and he's building, he's a structural engineer, and he's building this product called BuildSort. It essentially is developing a marketplace to sell your design. So essentially he's found the problem as a structural engineer that there's subcontractors who want to buy his design, and he doesn't really have the means to give it to him because there's no mechanism that the owner has put in place in order to streamline that process. The owner doesn't care to buy it, but it can be useful to the supplier, right?

So what he's doing is utilizing this mechanism to sell the design to not only the people that are working on the project, but to anyone who wants to learn about what the basis of his design is. I think insurance companies are interested in this, and he's looking at associations also. Payment processing, there's a company called Etch, and there's also one called DigiBuild based here in Chicago that are working on improving the payment times. Again, using Internet of Things to determine whether someone has done their work as planned on a day-to-day basis or whatever that time period is, if it's on a weekly payment process.

But they're ensuring that the requirements are met. So they're pulling the G702, your G703, any notarizations that can be done on the blockchain. So this is a project right now. Engineering ecosystem, I mentioned co-engineers a little bit earlier, and this is where engineers can do their designing and request for validation on their design. And what they do is, there are actually two tokens within this process.

There's a token that is called Gravity. And Gravity essentially identifies what your intrinsic value is as an engineer or designer. And people who are working in the engineering field and have more experience in a particular niche, their value is going to be more, and people will have to pay more for what they can create. The mass is what you'd be paying in order for your work to actually get accomplished. Or someone else outside of the engineering realm, they will be paying you in order to get work done.

They're doing this for is to develop an engineering body of knowledge, lots more use case applications in the industry, but in efforts to kind of start wrapping up and open it up for questions. My personal attachment to innovation is really grounded in this. We found that innovative organizations are community that have three capabilities. Creative abrasion, creative agility, and creative resolution. Linda Hill is a co-author of Collective Genius, the art and practice of the leading innovation.

She's also a regular contributor to Harvard Business Review. What are these things? Creative abrasion, creative agility, and creative resolution. Creative abrasion amplifies differences, doesn't minimize them, learns how to inquire, people learn how to actively listen and advocate for their point of view. Creative agility test refines portfolios of ideas.

It allows for design thinking, combination of scientific methods, and artistic processes running through a series of experience. And creative resolution, it combines opposing ideas in order to produce a new and useful innovation in order to improve the organizations. So my recommendations, adopt technology that facilitates collaboration and trust in order to create Collective Genius. Does that mean blockchain? Not necessarily.

There are a lot of people who are trying to use blockchain as something that will work for any solution. I'm not going to tell that bad joke. The next thing I'll make a recommendation to you is look at areas of your business where having data available at the right time would help. I think that's all of construction. I think that's all of this industry.

I think the way to find that out is to look at areas in your business where data is slowing you down. The other thing that I actually don't have written here is where it needs to be accurate, where does data need to be accurate, and where does it need to be shared with multiple people. That is where blockchain can help. If you can start identifying what those are for yourself and what you do on a day-to-day basis, those are the things that are going to allow for this industry change to actually take place within the next five to ten years.

We're in a new ecosystem with decentralized information. The more we understand the data that we're creating and the data that we're transferring and can be used for a wider application, the better off we'll be. In cryptocurrency, I don't know how many of you are familiar with these terms, BIDL and HODL. HODL is a funny word that basically says buy cryptocurrency and hold it because it's going to grow. But BIDL is the idea of building powerful applications instead.

Do things that are going to really push the needle and provide for more innovation. The other recommendations I have here are a lesson to the podcast so you can learn more about different applications for blockchain in the AEC environment. I'll be setting up trainings in the near future. Feel free to sign up for my emailing list at constructor.com. That's B-R-I-T-T-A-N-I-E at constructrr.com.

Next week and the following week, you will be participating in another celebratory moment for the Constructor podcast. Next week is episode 99 and on October 16th, we are going to reach episode 100. In these episodes, you will hear the highlights, the best takeaways from earlier this year. I'm happy to share these episodes with you in this celebratory time. Thanks for coming to the listening party.

If you haven't already subscribed to the podcast, what are you waiting for? You can do so at your preferred podcast player. I look forward to connecting with you next week.