Crypto EDU

Fractional Ownership

  • September 7, 2021
  • Intermediate
  • investing
Fractional Ownership icon 01 Large

The simplest example of fractional ownership is stock, where each investor in a company owns a small percentage of the company and benefits from its growth. Real estate can also be an example of fractional ownership: If several people chip in to buy a mansion, each party to the agreement owns a part of the house, proportional to the size of their contribution. There are multiple ways the owners can share the mansion. They can subdivide the property, letting everyone own a room, for example. Or, more practically, they can establish a time-share in which each owner is granted their own window of time to have the mansion to themselves. 

But what if a hundred people wanted to buy a painting as an investment? You’re obviously not going to slice it up, and trying to hang it in every investor’s homes for a short period of time is impractical. This is where blockchain technology can help. The emergence of blockchain-based crypto tokens has made it possible to invest in high-value assets that can’t easily be divided or shared. A painting can be represented by a number of crypto tokens, or even by a single token that can itself be subdivided, much as a dollar is made up of 100 cents. Tokenizing a work of art or a vintage car or a luxury watch is like selling shares in these objects: Although they often do not have the item in their possession, fractional owners do have a stake in it and profit if the item appreciates in value.

In cryptocurrencies, fractional ownership can be a useful investment tool, especially with a token like Bitcoin that trades for tens of thousands of dollars. If the only people who could invest were those who could afford at least one Bitcoin, many interested parties would be left out. But each Bitcoin can be broken into 100 million Satoshis, making small investments accessible to everyone. Theoretically, there could be 100 million fractional owners of a single Bitcoin. 

Crypto tokens can also be used as a tool to raise funds for a project. For example, a developer looking for capital to build a new high-end apartment complex could release crypto tokens representing a stake in the build. Even if someone can’t afford an apartment in the building, if they can afford a token they could still reap the benefits of a rising luxury real estate market. 

Why should you care about fractional ownership? 

It’s another way of democratizing the financial industry. Instead of going to a bank, entrepreneurs can easily raise funds from anyone with access to the Internet. From the investor side, crypto tokens open up so-called alternative asset classes like blue chip art or luxury real estate that once were accessible only to the very wealthy.

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