Collective Fractional Ownership: A Proposed Blockchain Use Case

We at ETHNews normally focus on covering the news cycle. Today, I’d like to step away from my role as a reporter to suggest a novel (as far as I’m aware) application of distributed ledger technology (DLT), one that I call “collective fractional ownership.”

Many blockchain-based solutions involve “tokenizing” all sorts of things from land rights to precious metals to carbon credits. To tokenize a physical good, a legal privilege, or anything else, one issues a digital asset on a blockchain network that stands in as that thing’s digital counterpart.

If a person can demonstrate ownership of the digital asset, then they can prove that a gold bar in a vault (or at least its cash equivalent) belongs to them, or that they are legally entitled to pollute or to prevent others from building on a particular parcel of land.

Fractional Ownership

Fractional ownership takes the logic of tokenization a step further. In most blockchain networks, tokens are divisible. Therefore, even if a token represents an indivisible physical asset, like a house, the digital representation of ownership over that asset can be divided into parts and sold to several owners.

As a matter of fact, a handful of blockchain startups are already offering fractional ownership solutions geared toward the real estate market.

In India, a company called PropertyShare.in is targeting would-be investors with a service that allows them to buy fractional shares of residential and commercial units. The arrangement allows them to collect (partial) rent on the properties and to watch their net worth increase as property values appreciate.

The firm’s co-founders explained that the service enables customers to invest as little as $15,000 in high-end Indian properties, as opposed to the roughly $1 million or more that they say these properties can cost before ownership is fractionalized.

In the US, a recently rebranded firm called Meridio (formerly Project Pangea) told ETHNews that it planned to launch a similar service on the Ethereum mainnet by the end of May. A company spokesman said that future implementations of the platform might contain features that help landlords encourage their tenants to become partial owners, giving those residents an added incentive to take care of the properties they inhabit.

And in Europe, a virtual art gallery is preparing to sell tokenized fractions of paintings.

“Collective” Fractional Ownership

In the technical sense, what I call collective fractional ownership is not much different from general fractional ownership, but it would have a different target audience. I coined this clumsy term to distinguish the types of fractional ownership arrangements I present below from the more investor-focused models described above.

My proposal is to grow this concept into something bigger than a scheme for putting people’s spare cash to work – to apply it in ways that enhance people’s basic abilities to earn their livelihoods.

Multi-party ownership may not be a groundbreaking idea on its own, but DLT could allow it to be deployed in new ways. However, most of the use cases that follow will only become possible if and when blockchain technology scales up and enjoys widespread adoption.

What Would it Look Like in Practice?

To introduce this expanded vision of fractional ownership, consider this simple example: In 2016, I visited a friend in Vietnam, where he was running a nighttime-only restaurant. He rented the facility from its owner, who used it to service the lunch crowd and closed up shop by 3 p.m. every day.

In economies where these kinds of arrangements already exist, collective fractional ownership could help would-be restauranteurs establish space-sharing agreements in which each party is a co-owner. If necessary, they could all take out loans to finance the acquisition. That way, rather than continually pouring money into the black hole of tenant rent, the co-owners would move closer to land ownership with every payment.

Collective real estate ownership can be achieved without the help of DLT, of course. For an example with a more obvious blockchain connection, let’s look at the taxi industry in Nigeria and Ghana.

While some taxi drivers in the Anglophone West African nations own their cabs, many do not. Typically, those driving someone else’s car pay daily or weekly rent to the vehicle’s owner in the form of a fixed fee.

Imagine if, instead of making payments to vehicle owners, three or four drivers collectively purchased a car.

They could each drive it every day for 6- or 8-hour shifts, and EDCCs (also known as smart contracts) could be deployed to address certain potential shortcomings of the shared ownership system.

One example of how this might work: All drivers benefit equally when their shared vehicle is kept in good working order, but why would any of them want to spend their own money on maintenance and simultaneously lose out on revenue while the car is in the shop? To incentivize the co-owners to pay for the taxi’s upkeep, one or more contracts could collect a portion of everyone’s earnings and use these funds to compensate whichever driver takes the car to a mechanic.

Similar income-sharing mechanisms could also incentivize drivers to accept shifts that are less profitable due to a lack of passengers (overnight) or traffic jams (during daytime rush hours).

Use cases like these could help urbanites more efficiently marshal their resources, including but not limited to transport vehicles and commercial space. In a future beset by the dual impacts of population growth and urban migration, such efficiency may indeed be necessary.

There are other arguments for considering this type of system as well.

Collective fractional ownership could be one possible tool for connecting community members with the benefits that they are entitled to derive from community-owned assets, not unlike the way that Alaska pays its residents a share of the proceeds from its oil sales.

It could also be useful for organizing certain kinds of grassroots efforts, like assembling and operating a renewable energy-powered microgrid.

Imagine that residents of an area want to invest in solar power. Though no single community member can afford all the panels, batteries, and meters that it would take to establish a local grid, several of them can cover the cost if they pool their funds.

In a collective fractional ownership paradigm, the parties that contribute the money for the equipment and its installation can receive proportional shares of the electricity produced, which they can consume or sell at their discretion. If their prices are low enough, community members who did not invest in the infrastructure may even see their electricity get cheaper as a result of the project.

Final Thoughts

The use cases that I’ve presented should be taken as food for thought rather than literal proposals. My argument is that the concept of fractional ownership can eventually spawn innovations that do much more than create new investment opportunities and make life easier for landlords.

A lot of pieces will need to fall into place before a collective fractional ownership system can be implemented in any kind of practical way, but as developers build technologies that they hope will support the economic models of tomorrow, such systems might be worth thinking about.

Adam Reese is a Los Angeles-based writer interested in technology, domestic and international politics, social issues, infrastructure and the arts. Adam is a full-time staff writer for ETHNews and holds value in Ether, Bitcoin, and Monero.

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