Debate swirls around digital currencies, and those involved largely have been relegated to the fringe: techies, speculators and hackers. However, the case for digital currencies presents a possible solution for even the most risk-averse construction executive. Digital currencies could mean pushing forward stalled projects and the ability for developers to target sustainable programs that have been sidelined under traditional funding structures.
If the barriers to entry into these cryptocurrencies are so high, then how would a construction company begin to get involved? What would a digital currency payment system look like in practice?
The digital currency landscape
Digital currencies have been around for a while, but the appearance of Bitcoin on the scene in 2008—and its more recent meteoric increase in value—re-injected interest in the trend. Bitcoin, however, is not an ideal currency for the construction industry in that it is decentralized (no network engineers) and it is completely anonymous, meaning no enforcement of the Know Your Customer or Anti-Money Laundering principles. This makes its use in commercial and government procurement almost impossible.
However, there is something laudable about the ease of transactions with a currency that doesn’t require bank intermediation and the fees that come along with it. Bitcoin and other similar cryptocurrencies have spurred regulators to investigate how the best qualities of cryptocurrency can be applied with the principles of more-established institutions. Out of this research have grown organizations such as:
- the Construction Blockchain Consortium, with members including AECOM and PwC;
- the MIT Digital Currency Initiative; and
- the Amero, a digital currency backed by the North American Procurement Council (NAPC).
This technology is being distilled and implemented by governments and organizations, including by major banks such as Citibank, which is working on its own digital currency called Citicoin. J.P. Morgan has also made significant strides in digital currency, as it hired a head of digital currency strategy this month. The U.K., Sweden and Switzerland have also embarked on initiatives to implement a digital system that bypasses the traditional methods and is not tied directly to gold.
Project finance freeze
For decades, the United States has under-invested in its infrastructure. This includes everything from major projects such as road construction to the more minor upkeep of government assets including as schools and pipelines. As infrastructure spending from Washington, D.C., seems to be at a near-halt, tax revenues and bond issuances from cities have also been on the decline.
Cities no longer want to raise funds through bonds and others find the cost of capital for some projects is too high. This leaves important clean energy, water and urban housing projects left in limbo. With a digital currency, funding for even the smallest projects that never received approval can move forward, such as replacing a city’s street lights with LED bulbs or replacing a school’s HVAC system with one that is more sustainable and resilient.
Put into practice
A digital currency is successful when enough users – including contractors and their clients – exist in the network. As the number of users increases for a digital currency, so does the number of services and supplies available to the owners of the digital currency. In the case of one digital currency, hundreds of contractors and suppliers have begun to accept a small amount of the currency in exchange for services. Many of the vendors are receptive, as it is tax-free and does not require any additional financial engineering.
However, for this system to function at a scale necessary for lasting improvement, vendors of the currency need to increase. Construction contractors may look into digital currencies as a possible avenue for grants and to find alternative project funding.
