Circular thinking in construction: using Blockchain to verify the origin of second-hand goods

The reuse and repurposing of second-hand technology, goods and complex materials will play an important role in achieving a more sustainable construction industry. In this blog post we consider the potential for crypto technologies (for example, non-fungible tokens (NFTs)) as a tool to verify the provenance and integrity of second-hand goods.

The context

Construction stakeholders are actively exploring new ways to optimise their supply chains to fulfil client demands while minimising costs, time, and inefficiencies wherever possible. Recycling high-tech equipment is expensive and comes with its own set of practical challenges. As the construction sector seeks to minimise its environmental footprint, the focus has started to shift from recycling raw materials or parts, towards the repurposing, and ideally reusing, of second-hand technology, goods and complex materials. Examples include the reuse of decommissioned wind turbine blades or older solar modules and photovoltaic cells.

Simultaneously, project stakeholders face increasing cross-jurisdictional requirements to make public disclosures regarding human rights and environmental compliance across their downstream supply chains. Where supply chains are long, span different jurisdictions and involve the use of temporary or second-hand goods and materials, it becomes particularly difficult for end users to make clear statements, with confidence, about the sourcing for such second-hand items.

Public disclosures about second-hand goods: the problem

Manufacturer guarantees usually only extend for a fraction of the expected lifespan of highly specialised construction goods. Beyond that finite lifespan, an end-user cannot rely on an original manufacturer’s guarantees, and it becomes increasingly difficult to verify an item’s original provenance and the production standards or sustainability practices of the original manufacturer.

It is important for the legitimacy of, and public trust in, the construction industry that solutions to issues of public supply chain disclosures facilitate the adoption of a circular economy dedicated to using second hand products and thus limiting the extraction of raw materials and the production of waste within the sector is not curtailed.

Verifying provenance: a blockchain solution?

At its core, a blockchain uses cryptographic techniques to create a record that cannot be changed – a quality referred to as immutability. In its most basic, original form, a blockchain served the purpose of memorialising exchanges of digital assets, one of the original and most popular varieties of which was Bitcoin. The facts surrounding a transaction (party A exchanged how many Bitcoin with party B) are mathematically bundled into a “block”. Blocks are chained together to create a ledger of transactions relating to that species of token. Bitcoin has its own blockchain; other tokens have their own unique blockchains. New blocks would be continually added to keep a single, common record for all transactions involving that particular asset.

The techniques used to maintain a blockchain involve an entire community of participants. The blockchain is not kept only on one computer, but has copies distributed across many locations – and the techniques that ensure its accuracy require agreement (through complicated mechanisms) between that community of participants to continually establish an identical ledger. The ledger is, therefore, said to be “distributed” across these various systems, and is (in the most common form relevant here) publicly viewable and verifiable. This publicly distributed ledger character of the blockchain technology is core to its security and validity.

Very quickly, it became apparent that the assets memorialised in a chain need not be limited only to representations of digital coins like Bitcoin. Any variety of physical assets in the real world, or assets that merely existed in digital form, could be embodied digitally. This digital embodiment is mostly commonly referred to as a token. Many events, facts, and transactions can be “digitised” or “tokenised” in order to be recorded in a particular chain.

Tokens can be fungible or non-fungible. Fungible tokens are all identical and freely exchangeable – such as the Bitcoin mentioned above. NFTs represent a unique asset that is distinct and cannot be copied or divided. Herein lies the key significance for the construction sector.

Any hard asset can be represented as a digital token. An NFT can be associated with an asset at its origin, and remains connected to the asset even as it is bought, sold or traded. The NFT provides an authenticated certificate that can always be publicly identified and traced, providing a secure framework for the asset, and a clear information exchange to various stakeholders, such as principal contractors, subcontractors, suppliers and consultants. The use of NFTs to verify provenance can also assist stakeholders in guaranteeing procurement processes are compliant with the appropriate ethical standards.

Any maintenance, modifications or upgrades performed on the asset, can also be memorialised on the associated blockchain, providing further insights into low quality or poorly maintained materials. The use of NFTs is not without limitations, as for such assets to be a viable tool for the construction industry, participants would have to actually utilise the ability to memorialise their transactions pertaining to specific assets in this fashion. As it is a relatively novel tool which requires a level of knowledge and skill, this may not be consistently implemented by every company within the supply chain, leading to incomplete records. Blockchain solutions also present added cybersecurity risks that must be appropriately managed.

While little law exists to govern the use of such assets (aside from generally applicable contract law bearing upon exchanges of the hard asset), one can envision a world where contractual counterparties demand NFTs – being able to perform NFT audits – as a way to authenticate the validity and provenance of assets. This would create commercial incentives to maintain such ledgers, and may potentially add further value to the asset.

Conclusion

Notwithstanding the recent chaos in the crypto markets, the manifold applications of blockchain technologies are becoming readily apparent to increasingly diverse communities. The construction industry has significant opportunities to take advantage of these technologies to improve supply chain visibility and component traceability, and we anticipate varying applications pertaining to these opportunities to emerge with greater frequency.