The Crypto City - Crypto Architecture

In part two of Crypto City, there will be a discussion on the impact of blockchain on current cities and their residents that goes beyond smart city. The concept of smart city is the introductory stage of intelligent urban systems and the impetus of blockchain adoption. As described in the first part, the consequences of this technology extend into the economic and social sphere, but also have the potential to cause major structural changes in governance and political institutions.

To start considering new types of governance and institutional arrangements, we have to examine the transaction system and its costs that are altered by blockchain technology. The main feature of blockchain — decentralized, distributed networks — can store and transfer value and become incentives of equal access to collective participation. As a result, it enables incentivized services and products, which differ from the current system of public, private and community services and products. The interaction of these goods with governmental data assets is a subject to regulatory frameworks, which presents a significant challenge to cities in terms of management of said assets, which increases competition among cities. Additionally, blockchain fosters new approaches to urban planning. Considering the transaction costs, new pathways for the system configuration are to be uncovered.

The Critique of Smart City

The key aspect of the smart city movement is the generation of terabytes of data out of daily human interactions and general infrastructural operations. Despite the intention to holistically record urban reality through data, only very little is noted and captured that can be put in actual use. It renders the smart city a system of data capturing, by usage of which the urban governance seeks to improve the quality and effectiveness of infrastructural operations in real time. It implies that if the smart infrastructure can „sense“ the happenings around it, it can be beneficial to management of urban resources. Smart city thus promises more efficiency in navigation, logistics and energy management which should reflect in a better quality of life, seeking to imbed technologies of digital sensing and computation processing. It seeks to operate on a large scale, but as a centralized system of closed computation [1].

And that is the main problem of the smart city — data processing from a central point, coordinated by the local government or vendors contracted by the local government. The usage of omnipresent sensors to keep track of human activities is often compared to surveillance and raises concerns with data security and privacy [2]. Another critical point raises questions on performance measuring, which may cause exclusions of relevant information due to algorithm biases and the tendency to generate future probabilities based on current patterns and not on all possible, equitable possibilities [3]. Usually such critiques meet with advocacy of participatory empowerment of urban citizens in urban planning processes, forms of co-design, civic entrepreneurship, democratic social media networking [4] or art-based initiatives to endorse the means of urban development by the bottom-up approach. However, these, despite increasing levels of urban livability, are not the tools of dismantling the centralized character of the smart city. At best, they act as an overlay of the centralized technocratic system. To decentralize the smart city, its inherent structure has to be addressed, and that can be done by introducing blockchain, which opens up the closed computational scheme, is adaptable, resilient and minimizes the needs for planning.

So we understand blockchain as a protocol of a value exchange, due to its automated transfer of value across digital networks without the need of involvement of the third party. Blockchain is a distributed network using encryption and technology of direct transfer, creating an immediate update while recording a transaction. The nodes within the system network are all synchronized, so when a direct transfer occurs, it shows up directly in an updated form. Those with access to the network are verified users who participate in the system of agreements via smart contracts in various ways, such as enactment of automated contracts between people or between machines.

In terms of smart cities and blockchain, there is a collision of interests. Blockchain being decentralized by nature cannot be accessed via a central server. In relation to IoT, blockchain is thus the next generation of a smart city — the crypto city. It is an upgrade from the laborious process of collecting data from complying parties and difficulties with infringing their data privacy to an automated system of transactional efficiency. With cities getting more complex and more data to be collected, stored and processed, it can be an optimal arrangement of institutions and organizations in future cities.

Transactions of the Centralized Model

Under transaction we understand the system of organizing, monitoring, negotiating of costs through markets. Observing economic activities occurring under a type of economic organization gives us an insight into the institutional form that organizes these transactions and their costs. When a significant amount of costs is associated with these coordinating activities, it puts the entire system in a spotlight, enabling questioning the efficiency of the hierarchy and management. The analysis of the transaction costs is relevant to the urban theories looking at the efficiency of economic organizations in terms of urban activities. New information and communication technologies such the web or the blockchain can influence the transaction costs by changing the actions once undertaken by the government, which may be executed in a different way or form.

Transitioning from the analogue to smart city was possible because of the arrival of new technology (sensors, monitors, smartphones, cameras etc.) enabling a substantial increase of the capacity of the data collecting infrastructure. However, the system organization remains the same. The data input is still being managed by the same people in the same task division, only faster. So the quasi ‘open data model’ on which the smart city is processed by the central entities and no amount of new and more elaborate data collecting devices is going to change that. It is processed, controlled and assessed by the same institution.

There are new ‚plug-ins‘ that have been introduced to make this system appear less controlling, affording more comprehensive overview over one’s data that issues collected. It’s similar with the rights to request access and correction of this data, as well as disclose how this data is being used and with which third parties is it shared. These so-called ‘sectoral hubs of experience'’ that handle the data sets also approve ‘trusted users’, often of sensitive data, which is truly cynical when we think about their claimed intentions to increase the user participation. By continuing to use this model, it is therefore very unlikely that the hurdles of regulations will not be impeding progress.

Despite the notion that the collected data and the exchange mechanisms handling it meets the „regulatory requirements for the management of personal data“, the dangers are downplayed by the stakeholders. They are often dismissed as an issue of only adjusting correction policies or more effective processes. But unfortunately, security of the data plays only an incumbent role. Not only is the improper use of private data prone to de-anonymization, it is also susceptible to hacking. And if any data systems require adoption of higher protective measures, it could also be an opportunity to introduce higher systems of surveillance that will “need more access rights” to protect" distinct data sets.

Crypto Architecture and the Blockchain Identities

The blockchain approach to openness of data devolves the function of data governance into technical architectures. It means it replaces the role of the government as data facilitator [5] to infrastructure provider [6]. Data governance then turns into a “platform governance” [7]. While there are still costs tied to this role (such as providing payment services), the primary use of the mechanism is directed towards tokenization of data which enables direct user participation proposing data availability paradigms.

Blockchain and the cryptographic systems introduce novel, transparent mechanisms of identity. Any platform that shares and uses data functions on a mechanism of anonymization to remove the data due to data protection legislation. Rather than using anonymization algorithms, interactions in the blockchain network allows the mechanism of anonymity of pseudonymity, making it difficult to relate the data sets to an individual. It is achieved through identity models that de-identify data already at the point of their generation or collection and not distribution. This requires development of sophisticated infrastructure that is able to manage the blockchain identities consisting of a cryptographic key pair, one public key that proves the identity by the second, the private key. Ideally, this is providing privacy without compromising decentralization, providing a useful framework for the exchange of data in the crypto city.

To sum up, the smart city model treats organizing and coordinating data as a problem of regulation, subjecting it to various legislative and regulatory policies. There are issues with property rights, whereas the crypto model alters the transaction costs through synchronization of the data markets.

References:

[1] Wood, G. (2014b) Ethereum: a secure decentralized generalized transaction ledger’.

[2] Crang, M. and Graham, S. Sentient Cities: Ambient intelligence and the politics of urban space.

[3] Mattern, S. A City is not a Computer. Places.

[4] Concilio, G. and Rizzo, F. (2016) Human Smart Cities: Rethinking the interplay between design and planning, Urban and Landscape Perspectives Series. Heidelberg: Springer.

[5] Almirall, E., Wareham, J., Ratti, C., Conesa, P., Bria, F., Gavira, A. and Edmonson, A. (2016) Smart Cities at the Crossroads: New Tensions in City Transformation. California Management Review, 59(1): 141.

[6] Robinson, R., Rittenbruch, M., Foth, M., Filonik, D., and Viller, S. (2012). Street Computing: Towards an Integrated Open Data API for Cities, Journal of Urban Technology, 19(2): 1-23.

[7] Bratton, B. (2015) The Stack; Massachusetts Institute of Technology, Cambridge.

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