Bitcoin and beyond: How can Blockchain Technology help build Smart and Sustainable Cities?

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by Sarbuland Khan

Fifth Edition of CSU NEWS

Here is a key Covid-era takeaway: “ Everything that can be represented digitally will be digitized and our lives will become increasingly digital.”

A digital revolution has thus begun even in the staid world of finance, with Bitcoin leading the charge and no end in sight. Home-bound by Covid-19 lockdowns, investors, large and small, are buying and selling Bitcoins and other cryptocurrencies at a frenetic pace. Although still highly speculative, these digital assets are evolving into significant financial instruments with as yet unclear implications for global finance.  

Mainstream payment platforms such as PayPal have begun to accept crypto currency transactions. Big companies such as TESLA have bought significant amounts of Bitcoins as part of their cash reserves. Central Banks around the world are paying close attention to these developments.

China has announced that it will develop a digital eYuan, taking the lead toward introducing a digital currency as a legitimate part of its financial system. The US Federal Reserve and the Treasury have also indicated that they are  studying the evolution of cryptocurrencies and its implications for the dollar and for  the banking system.

The success of the recent  IPO of Coinbase as a digital exchange for cryptocurrencies and  the thriving trading  on other platforms such as Binance also point to growing mainstream acceptance of cryptocurrencies as financial assets and a store of value.

Still, very high day-to day volatility in the prices of cryptocurrencies and other digital assets such as NFTs (non-fungible tokens) suggests that some regulatory measures will be needed to ensure stability and predictability in their value before  they could become fully accepted  as part of the  world financial system.

Although the  total value of Bitcoins has sky-rocketed to almost two trillion dollars in just a few years since its launch in 2009, the dream of its inventor and promoters to  upend the entire  global financial system may well remain a dream until many of the complex  issues and uncertainties surrounding their use are resolved. The role of cryptocurrencies in global finance may thus remain an open question for the foreseeable future.

The main allure of crypto currencies is their democratic, decentralized and distributed yet immutable character:  no central authority or intermediary, such as a bank,  is needed to validate and complete crypto transactions. These characteristics are directly derived from the  blockchain technology that underpins crypto currencies and digital assets such as NFTs.

Blockchain technology was first described by Stuart Haber and W. Scott Stornetta in 1991-92 for research purposes as a  digital ledger,  created and used by a network, containing a decentralized and distributed database of chronologically connected blocks of data of equal length, that are stamped and signed, forming a digital chain, so that no one could alter any part of it without prior consent of those in the network.

The technology came into its own only in 2008 with the publication of a White Paper by a group under the pseudonym, Yatoshi Nakamoto, followed by its use  in 2009 as the public ledger for transactions using  Bitcoin as a digital token of value for those who were contributing to the blockchain network. Ever since,  in the public mind blockchain has been associated with the Bitcoin.

But, Blockchain 2.0 developed independently of the Bitcoin in 2014 has vast actual and  potential applications that go  far beyond cryptocurrencies with major implications for almost every sector of the world economy. Many experts have argued that the potential long-term impact of blockchain will be as profound and disruptive as that  of the internet itself.

In the context of urban development, blockchain has been called “the secret sauce” that can help  build smart and sustainable cities of the future by  enabling city governments to lower costs, improve efficiency and effectiveness, enhance transparency and provide a framework  for innovation, accountability and access in public management.

Blockchain can be used by cities to create a  public, distributed, digital ledger for transactions, built through inputs from independent sources  that contribute data into a single, shared database which is transparent, incorruptible and accessible from anywhere. Cities can also use blockchain to link together and coordinate key city functions on an unprecedented scale through an immutable urban digital ledger that contains  key data points  from different sectors including  procurement and financial management, housing, health, education, business and services, transportation, energy, water, and  sustainable environment.

In the blockchain- powered smart city of the future, city operations are knit together in a well-integrated system of sourcing and delivery of services.  Blockchain  provides smart cities with the framework for advanced urban planning and open new ways of addressing the major urban challenges of sustainability, efficiency, accountability,  public access  and  civic engagement.

Blockchain can also provide the framework for the application of  new and emerging digital technologies such as Big Data, AI, distributed cloud, IoT, 5G, and 3D Printing in city operations and services. The more these technologies are connected using blockchain as the framework,  the greater the opportunities for cities to grow  smarter and  more sustainable.

Many cities around the world are actively developing blockchain powered innovations for creating digital registries of their housing stock and  local businesses, for the inventory of jobs and employment opportunities, for their procurement and financial management, for smart contracts, for voting and election processes, for digital inclusion and civic engagement and for fighting fraud.

Dubai is reinventing itself as the smart city of the future powered by blockchain. New York has recently launched a blockchain based initiative to provide banking access to the homeless through free smart phones. Estonia has a national project for digitizing all its operations and services. India has launched a project for creating 500 smart cities.

According to Mckinsey,  some 600 smart cities world-wide are currently pursuing  a digital transformation. And this is just the beginning. As the movement  toward smart and sustainable cities gathers pace using Blockchain as a framework, it has the potential for improving the lives of citizens in countless, often unforeseen ways.

However, as is the case with all technologies,  some challenges  will need to be addressed by cities in adopting  blockchain on a large scale.  The technology is highly energy intensive due to its very large computational requirements. It  also needs significant initial capital investment and high-skilled networks for its operation and management. Regulatory issues relating to privacy will also need to be addressed. But, it is likely that as  applications grow in scale, innovations will help meet these challenges and the costs, in terms of energy use and investment, are likely to come down, making it  more  affordable and accessible to less affluent and smaller cities as well.    

About the Author: Sarbuland Khan is the former Executive Coordinator of the UN Global Alliance for ICT and Development, a prolific author in economics and an Advisory Board Member of CSU. He dedicated his career at the United Nations to development and technology issues, establishing the UN ICT Task Force and was a diplomat for the Ministry for Foreign Affairs of Pakistan.