Blockchain Technology for Financial Inclusion in Smart Cities
Today, we're focusing on a technological catalyst for change—Blockchain. In the context of smart cities, this distributed ledger technology is not just an innovation; it's a pathway to financial inclusion. It offers unparalleled transparency and security in transactions, thereby democratising access to financial services [1].
There are several ways in which blockchain technology can be used to improve financial inclusion in smart cities. Let’s dive in.
Decentralised financial services:
Blockchain technology can enable decentralised financial services, providing a trust-free, democratised, and automated platform for transactions. This technology can facilitate the sharing economy in smart cities, allowing underserved populations to access financial services without relying on traditional financial institutions [4].
By leveraging the transparency, privacy, and distributed nature of blockchain technology, these services can offer secure and efficient transactions. Furthermore, the automation of business transactions and services through blockchain technology can significantly reduce operational costs and increase efficiency. This democratisation and automation of financial services can potentially transform the urban landscape, making cities smarter and more inclusive [4].
Smart contracts:
Smart contracts can be used to automate financial transactions, reducing costs and increasing efficiency. Blockchain technology can simplify processes that are traditionally costly and time-consuming, such as those in the utility industry. By generating and customising investment tokens at each phase of a project, smart contracts can promote accountability and better budgetary scope [1].
This technology can also be used to track water pollution and manage water access rights, providing real-time information and secure, efficient tracking of transactions. In the power infrastructure sector, blockchain can integrate energy consumption equipment with the internet, facilitating the execution of logical functions and algorithms to produce outputs, thereby automating energy supply. This potential of blockchain technology can significantly contribute to the development of smart cities, making them more efficient and sustainable. [1].
Improved security:
Blockchain technology provides enhanced security for financial transactions, reducing the risk of fraud and increasing trust in financial services. As the backbone of decentralized smart banking, blockchain technology, combined with AI, is disrupting traditional banking models and extending financial services to unbanked or underbanked populations. The transparency and security features of blockchain technology foster confidence in these new banking systems [5].
Furthermore, the integration of new authentication technologies, such as fingerprint, facial recognition, and vein recognition, can further enhance the security of these systems, thereby boosting trust in blockchain-based financial services. This shift towards blockchain and AI-enabled banking could potentially bring financial inclusion to more people than ever before, particularly in the context of smart cities.[5]. This can help increase financial inclusion by providing a secure and transparent financial system.
Streamlined supply chains:
Blockchain technology can be used to streamline supply chains, reducing costs and increasing efficiency [2]. Financial inclusion can be significantly improved through the application of blockchain technology in supply chain finance by enabling quicker, more cost-efficient product delivery, enhancing traceability of products, improving coordination between partners, and facilitating easier access to financing [10, 11]. This can help provide underserved populations with access to affordable goods and services.
Decentralised identity:
Blockchain technology can be used to create decentralised identity systems, providing underserved populations with a secure and reliable way to prove their identity [3]. This can help increase access to financial services, as many traditional financial institutions require proof of identity to open accounts.
Overall, blockchain technology can be used to improve financial inclusion in smart cities by enabling decentralised financial services, automating financial transactions, improving security, streamlining supply chains, and creating decentralised identity systems. By leveraging these capabilities, smart cities can help bridge the gap and integrate excluded groups into vibrant, connected urban economies [6].
Here are some specific examples of how blockchain technology is being used to improve financial inclusion in smart cities:
In Kenya, the government is using blockchain technology to create a digital ID system that will help to verify the identities of citizens and make it easier for them to access financial services [9].
In India, the government is using blockchain technology to create a platform for peer-to-peer lending that will allow underserved populations to access loans without having to go through traditional financial institutions. [8]
In China, the city of Hangzhou is using blockchain technology to create a smart city platform that will integrate financial services with other city services, such as transportation and healthcare. [7]
These are just a few examples of how blockchain technology is being used to improve financial inclusion in smart cities. As the technology continues to develop, we can expect to see even more innovative ways to use blockchain to help underserved populations access financial services.
Conclusion
Blockchain technology has the potential to revolutionise the way financial services are delivered. By enabling decentralised financial services, automating financial transactions, improving security, streamlining supply chains, and creating decentralised identity systems, blockchain can help to improve financial inclusion in smart cities. This will help to bridge the gap between the banked and unbanked, and integrate excluded groups into vibrant, connected urban economies.
References
[1] Alnahari, M. S., & Ariaratnam, S. T. (2022). The application of Blockchain technology to smart city infrastructure. Smart Cities, 5(3), 979–993.
[2] Partida, D. (2023, June 15). Leveraging blockchain tech to build smart cities.
[3] Rejeb, A., Rejeb, K., Simske, S. J., & Keogh, J. G. (2022). Blockchain technology in the smart city: a bibliometric review. Quality & Quantity, 56(5), 2875–2906.
[4] Sun, J., Yan, J., & Zhang, K. Z. K. (2016). Blockchain-based sharing services: What blockchain technology can contribute to smart cities. Financial Innovation, 2(1).
[5] aiforgoodstg. (2017, September 27). Smart banking for smart cities: How AI could improve financial access. AI for Good; International Telecommunication Union.
[6] Smart City. (2016, December 1). Smart financial inclusion. The Smart City Journal.
[7] Huobi Research. (2020, June 11). Blockchain as a new core of Smart City. Medium.
[8] Menon, Sheethal. (n.d.). P2P Lending In India. Retrieved August 2, 2023
[9] Achieng, Rachel and Kitili, Joshua. (2023, February 28). An overview of the digital ID system and the Unique Personal Identifier in Kenya. Centre for Intellectual Property and Information Technology Law.
[10] Harvard Business Review. (2020, May). Building a Transparent Supply Chain.
[11] Alicke, Knut.(2017, Sept 12.). Blockchain technology for supply chains—A must or a maybe?McKinsey & Company.
