Following on from our previous article, does blockchain merit a place in construction? we consider how blockchain technology might disrupt funding within the construction industry.

The problem

Investment in the construction industry can be slow, complicated and expensive. Like many real estate assets, ownership can be difficult to subdivide, transfer or track across international borders.

A new way

In response to these issues, technologists are seeking to find new solutions to these problems by looking at new models of financing through the tokenisation of real world assets.

Tokenisation effectively allows the release of micro digital shares (a token) in an asset such as an apartment block that might otherwise be prohibitively expensive or difficult to administer through conventional means.

Why tokenise?

A property developer could tokenise an apartment block where each token is allocated per m2 in an apartment building and made available for purchase to investors without the capital commitment of buying specific apartments within the building. Such tokens can then be kept as investment assets or traded for conventional currencies, digital currencies or against other digital tokens via an online exchange.

This could allow investors to invest or trade in assets that would have been otherwise difficult to exchange in the past and create new investment opportunities for investors whilst bringing more capital and liquidity into the market for developers.

The micro nature of the tokens would allow for increased portfolio diversification and greater risk management. For example, an investor might decide to spread their capital across multiple tokenised assets rather than committing to the purchase of a single asset such as an apartment.


The developer might seek to issue such tokens by creating a special purpose vehicle company which owns the physical asset and then issue physical shares. A number of tokens equivalent to the number of physical shares are then created and delivered to the token holders which can be traded or sold via online exchanges at greater speed and at lower cost than traditional methods.


From a regulatory perspective, such tokens would be securities against a physical asset and as such, there would be a large amount of regulatory hurdles to overcome.

The Treasury Committee launched their inquiry into digital currencies and distributed ledger technology in February 2018 and their report was published on 19 September 2018.

The report concluded that regulation was needed for the ‘wild west’ crypto asset market and that proportionate regulation could see the UK well placed to become a global centre for crypto assets and tokenisation. The UK has yet to introduce any crypto asset regulation and the Treasury Committee has recommended that regulation should be treated as a matter of urgency.

HM Treasury has not yet decided on how to incorporate crypto-assets into the current regulatory framework, but is considering two possible options. The first is to expand the Financial Services and Markets Act 2000 (Regulated Activities) Order to specifically include crypto assets. The second option is to set up a new framework of regulation for crypto-assets that is separate from the current legislation.

The Treasury Committee has considered that extending the Regulated Activities Order would be the quickest method of providing the FCA with the necessary legal powers to execute its duties of protecting consumers and maintaining market integrity. The second option of a new framework would inevitably take much longer.

The Treasury Committee has therefore recommended that the Government consider what ‘activity’ related to crypto-assets should be specified in the Regulated Activities Order and the ramifications of this introduction. It is the Treasury Committee’s recommendation this should include at a minimum the issuance of initial coin offerings (and by extension tokens) and the provision of crypto exchange services upon which such coins and tokens are traded.

For now, the committee has encouraged UK regulators to continue engaging with international bodies to ensure best practice from other regulators is learned and applied to the UK context. The inquiry remains open and is currently awaiting a government response.