For Smart Cities, Blockchain Technology Opens New Possibilities
Today, Americans have supercomputers in their pockets, on their wrists, in their cars and in their home appliances.
Internet usage is at an all-time high, with 89 percent of the population having access in 2018 — compared to 52 percent in 2000. According to the Pew Research Center, nearly 90 percent of American adults have access to the internet, and more than three-fourths of the population own smartphones.
As Americans more readily consume “smart” systems and applications, it’s obvious that they are ready for smart cities. It is imperative for cities of all sizes to build infrastructure that mirrors the growth and progress of their residents in order to take advantage of the advanced efficiencies of online systems. Blockchain will empower a city’s residents to make more informed choices that have the potential to create value for all involved.
Leveraging Big Data
Declining costs of electronic equipment like sensors and processors, and improved wireless broadband connections have accelerated the feasibility of smart cities, making it possible for municipalities to collect more significant data related to many kinds of transactions.
Collecting data from all of these various sources can mean more precise solutions and policies to get at the root of an issue. The availability of increasingly diverse city data, and the capacity of cities to systematically evaluate their goals, creates an opportunity to present solutions that benefit both residents and local government administrations.
For instance, moving city infrastructure data onto the blockchain ledger could streamline and improve municipal operations for the city and improve service delivery for the resident. Open data policies like blockchain stimulate local innovators, like software developers, to find patterns in the data.
These patterns can lead to development of solutions that offer conveniences and better public services for the residents who depend on them. Blockchain can increase the speed of public services as well as widen their capabilities and in some cases even reduce costs.
From the distribution of government benefits to transportation, alternative energy and even healthcare, blockchain offers exciting possibilities.
Digital inclusion and social impact
For the nation’s poorest individuals, technological advances like blockchain will pose both benefits and challenges. Nine million American households (or 7 percent) don’t use banks or other financial institutions to manage or save money. Another 24.5 million (nearly 20 percent) of American households are underbanked and 9 million American households are unbanked as estimated by the Federal Deposit Insurance Corporation (FDIC).
Some choose this lifestyle out of distrust of institutions, while others cite excessive fees as reasons why they choose not to use banks. Companies focused on social impact are using blockchain to bring solutions to those who want to use a bank, but for various reasons cannot.
For instance, the New York City tech company Blockchain for Change, Inc. has introduced a blockchain-powered application that will consolidate government and social benefits for low-income and underserved people. The American social security system requires physical documentation that is oftentimes impossible to keep track of when an individual is homeless, transitioning or reentering society.
Jason Kaplan is the company’s general counsel and director of policy. He sees blockchain as a “choice architect” and one that has the potential to bring greater financial inclusion into the modern economy. The company’s application Fummi was developed to use blockchain to decrease errors and help underserved residents gain government-issued identification and make better use of city services and benefits in general.
For those who are low-income or homeless, lack of identification is a serious issue. According to Kaplan, a virtual wallet with a unique ID establishes a single immutable profile for the residents. Consequently, those who suffer from poor or no credit can build a chronological history of transactions and deposits without the extraction of prohibitive fees, and minimum balance requirements.
This transactional history can then be leveraged to access non-predatory micro-loans and other financial services. It also allows social service agencies to collect basic data points for individuals without permanent addresses.
Soon, cryptocurrency will become just as ubiquitous as credit and debit cards. Blockchain-powered applications like Fummi represent a growing sector that will digitally enfranchise millions of Americans in need of services with a digital wallet. The market for virtual wallets has grown as vendors — like ApplePay and others — increasingly accept Bitcoin and other virtual currencies.
It’s important to note, however, that blockchain is not the same as Bitcoin, which is a type of digital currency that saw a meteoric rise in 2017. The two concepts are related, as blockchain is the platform that makes Bitcoin possible. Already, numerous companies as mainstream as Microsoft and Dish Network are accepting Bitcoin for payment.
As the world of virtual currencies matures, it will become increasingly easy to exchange one currency for another and access the wider market. Transportation on the Blockchain As self-driving vehicles continue to be tested in cities nationwide, they bring with them large implications for the states they navigate, like Arizona, Nevada, Pennsylvania and others.
Fully self-driving cars will have the capability of connecting with others on the road for a seamless experience. (For more information about the impact of autonomous vehicles on cities, check out our resource, Autonomous Vehicles: A Policy Preparation Guide.) Every autonomous vehicle will have a unique operational number linked to a blockchain-enabled virtual wallet preloaded with digital currency in the same way one might prepay a transit card.
As computing power increases in cars, the potential benefits range from real-time traffic negotiations between vehicles to allow for better traffic flow to pricing structures that would allow one vehicle to pay a premium to go faster than those around it.
Imagine variable tolling at the microlevel of an individual car. If you are in a rush, your car could negotiate with vehicles around you for right-of-way at a preset premium. Drivers that are in less of a hurry would move out of the way automatically and be compensated for increasing their travel time.
Blockchain would allow for car owners to negotiate rates and exchange money in real-time with no middle man or transaction costs. Additionally, paying for traditional tolls or even fuel — whether gas or electric — could be just as seamless. Once at your destination, the vehicle parks at a metered space or continues in a shared mode where it is continually carrying other passengers throughout the day with payments sent and received through blockchain. If the owner chooses not to share their vehicle, the meter opens a transaction with your digital wallet, and is paid — a fraction of a penny for every second the car is parked in that spot — in real time.
It must be noted, however, that it will be incumbent on policymakers to alleviate potential inequities that could arise due to these types of real-time electronic transactions. At the same time that someone has their car set to automatically negotiating better, more seamless travel by paying a higher rate, lower income drivers will be at an immediate disadvantage, because they cannot afford to pay higher rates.
This type of dystopian outcome could be further exacerbated by others that seek to drive around clogging the system to be paid to ‘get out of the way.’ Suffice it to say, the techno-optimist viewpoint may prevail, and we could all find ourselves in optimal situations with mobility working seamlessly as we glide through traffic.
Again, the policy environment will be critical to set the rules of the road. Once self-driving vehicles become widespread, cities may experience a decrease in parking revenue as the cars multi-task with a variety of passengers instead of sitting idle in a parking space. In this case, when self-driving cars are parked, cities will receive metered parking revenue in real-time, and will no longer have to pay for enforcement. Residents will no longer have to worry about fines or feeding the meter.
This shift presents a challenge for many cities. Pittsburgh, for example, derives 15 percent of its city budget from parking fines. That would be a significant loss. Further, if more people turn to the ease of ride sharing, cities stand to lose public transit revenue.
Blockchain may provide a way for cities to tax ride sharing transactions and make up the difference. These examples show how blockchain allows for economies, like that of parking revenue in cities, to be safe, transparent and instantaneous, and to have little or no transaction costs.
Alternative Energy on the Blockchain
Blockchain also has the potential to positively impact a city’s energy sector. In 2015, renewable energy made up 64 percent of all new electricity generating capacities constructed in the United States. As the nation diversifies its energy sector, several grid innovations like microgrids, energy storage technology and smart meters could improve efficiency and democratize the platform.
For example, the Brooklyn Microgrid (BMG) is a transactive grid project designed by LO3 Energy and the Siemens Digital Grid as a peer-to-peer energy trading system. The project aspires to bypass electricity companies and ultimately lead to a national microgrid system.
A microgrid is a localized energy system that can operate independently of the traditional grid. Blockchain technology allows for the transference of electricity credits to be executed through a secure, low-cost and public digital ledger/database that all users can reference. For instance, residents can finance solar installations by selling excess solar energy to nearby neighbors. In the case of a shortage, residents use the traditional power grid as a backup.
This sustainable shift is cost effective, self-financed, and avoids the waste associated with centrally-produced and distributed power which causes state and local capital expenditures.
Beyond city operations, blockchain promises to innovate the way residents start businesses, structure investments and account for wealth creation and exchange. Cities stand to benefit not just from increased efficiencies with lower costs, but also from greater economic integration and participation.
For more information, read our full Blockchain in Cities report.
About the Authors: Camille Moore is a Carnegie Mellon Heinz Fellow in NLC’s Center for City Solutions.
Elias Stahl is the urban innovation intern in NLC’s Center for City Solutions and Applied Research.