Sustainable development is one of the major concerns of the world these days. Various efforts in different dimensions by different governments and organizations have already been initiated to address the concerns of sustainability. Modern emerging disruptive technologies are also employed for digital services of smart cities and smart villages that reach the masses. However, statistics suggest that there is still a gap between rural and urban communities due to various factors. The lack of digital literacy among rural communities is one of the contributing factors leading to rural–urban digital divide. The present research is, therefore, an attempt to examine the world perspective of the rural–urban digital divide, to identify different levels of digital divide, to discuss various digital literacy steps that may be taken to reduce such digital divide, and to explore the role of blockchain in that context. Further, a blockchain-based digital literacy model for sustainable smart villages is proposed for the purpose of minimizing rural–urban digital divide. The potential benefits of the proposed evidence-based digital literacy model are real-time monitoring and control, smart contracts enforcement, literacy level-based personalization, and motivation through incentives, leading to transparency, accountability, and improved service delivery.