How Can Blockchain Boost The Development Of Smart Cities?

Blockchain is a technology that got most of its attention thanks to cryptocurrency hype over the last two years. Many still confuse the two and are therefore missing the potential that blockchain has for smart cities. Let’s start by explaining what blockchain actually is.

This article works with blockchain for corporate uses, which is a permissioned network and its uses within the public sector. As much as the decentralized public blockchain technology is useful and has a great potential, we need to look at the business network that will be using blockchain. Permissions and knowledge of each party have a significant value in the public sector, thus private blockchain is the one of choice for this type of use case.

What is blockchain?

By definition, blockchain is a trusted distributed ledger system across a network of users. It is a system, where the parties cooperate to ease the transaction process, make it more anonymous and yet more secure.

What it really means is, that blockchain is (unsurprisingly) a database made up of blocks of information. Each block represents a certain transaction that has been made on this network.

Transaction means changing the ownership of an asset that is on the blockchain, or any other change that is done to an asset. Assets can be tangible, intangible, or they can be in form of tokens (yes, yes — cryptocurrency).

An important feature of blockchain and the reason why it has such potential is the immutability of the blocks. Once a block is created and validated in the blockchain, there is nothing that can change it or erase it. Any change is recorded as a separate block that is again immutable. Data on the blockchain is cryptographically encrypted, ensuring a high level of security and anonymity on the blockchain among the participants.

There are 4 key terms of the private (or enterprise) blockchain technology: Shared Ledger, Permissions, Consensus, and Smart Contracts, that make it unique. I call these ‘The Big 4 of Blockchain’.

How can blockchain be utilized for smart cities?

Increasing effectivity

One of the basic building blocks of modernization of cities is IoT (Internet of Things) technology. These systems require a database to store and analyze the data they produce. Based on this data, further actions are taken, which also needs to be recorded and stored somewhere.

Take the example of a smart trash bin. It first generates an information once it gets full. This information travels to a person responsible for emptying it. Once the bin is empty, it generates another piece of information about its current state.

The problem occurs, if there are several devices and systems operating on the same principle and some participants may need access to several or all of those systems. Blockchain offers the possibility to have all the information in one database with participants having predefined permissions to view or change (transact) the information they need.

Motivating citizens to smart choices

Blockchain offers the possibility to create incentives to motivate the behaviour of citizens. Utilizing this functionality, cities or governments can achieve that citizens will make choices that are in the society’s best interest. This is best described by an example:

Let’s assume that the public transport in your city uses blockchain. You have a wallet in your phone that you can use to pay for your rides. If you as a citizen decide that you will use public transport this week instead of driving to work every day, the city will see this action. Thanks to a smart contract, it will then be able to automatically give you a reward for a conscious good behaviour. This could be a discount on your next month’s electricity bill, free public transport over the weekend, or anything else the city finds appropriate to motivate citizens.

The incentivization possibilities are nearly endless and they offer saving opportunities as well as improving the quality of life in the city.

Effective energetics

Companies aiming to improve the process of production and distribution of electricity are also establishing themselves on blockchain. Citizens with solar panels on their houses could, thanks to these projects, automatically trade their unused electricity with their neighbours and others that are connected to the grid. These transactions would be executed automatically, with the help of smart contracts and therefore effectiveness would be achieved.

Not only does this method create an incentive for people to move towards sustainable energy sources, but it also enables more efficient utilization of produced energy.


Estonia has created such a strong blockchain case, that it deserves to be mentioned here as a separate point. It is one of the most progressive countries in the world in terms of blockchain adoption and implementation. Today, Estonia utilizes blockchain for:

  • Blockchain technology helps detect who looks at a person’s digital health data and changes it and when
  • Blockchain technology helps to see when information about a company in the e-Business Register was changed and why
  • Blockchain technology helps to detect who changed data about real estate in the e-Land register or statements documented in the e-Court system as well as when and how
  • Blockchain technology helps to ensure that no one has manipulated smart devices such as intelligent transportation or smart war machines that could become life-threatening

Here, blockchain is not a database that physically stores the data. It rather stores hashes, which are cryptographically secured codes, generated specifically for a certain document, change or transaction on the network. It is something like a fingerprint. You cannot tell a person’s eye or hair colour based on it, and yet, they can be identified using their fingerprints. This is similar to how a hash works as well.

Estonia has been experimenting with blockchain from 2008 and it got very far. That is a sign that this new technology has a great potential and is here to stay. It’s adoption, however, does not happen overnight. Right now, the first steps of analysis of potential use cases is the most important. Cities should not stay idle, because the sooner they start experimenting with blockchain, the sooner they will understand the ways it can benefit them.