blockchain and the new era of ownership
Nearly everything in the built environment can trace its ownership to a single entity...
…A company, a government, an individual. But what if that suddenly changed? What if objects could have multiple owners all at once? How would our rules need to change? How would we need to change?
Over the course of this summer, I along with my partner Kaan Yilmaz built a tool that facilitates fractional ownership of real-world assets. This tool allows users to invest in and share use of hard assets like real estate, automobiles, and fine art. We call it BlocParty, and its birth necessitated a total reframe of how we defined ownership and value.
While designing BlocParty, we got pretty far along in our build when we noticed, to our horror, that our foundational concept of ownership had shifted beneath our feet and now needed to be rebuilt. “What does it really mean to own something?”, we asked ourselves. Upon inspection, we determined that to own something meant to have total sovereignty over that thing, where you had every right to use, rent, sell, alter or destroy it as you saw fit. But in this new world where we no longer fully owned, but partially owned something, how would our thinking need to change?
We realized that partial, or rather fractional ownership meant having conditional sovereignty over part of a shared thing based on an agreed upon set of rules. You see, to fractionalize an object means to share not only the benefits of owning that object, but also accept shared responsibility of owning that object. In this way, fractionalizing assets requires entering into a social contract with other people. To share ownership in the realworld, we must abide by agreements that never needed to exist when we were fractionalizing stocks, bonds, and other imaginary numbers in ledgers.
Our new definition allowed us to design a system for sharing the use of physical objects between a number of different owners. For each owner of a particular shared asset, we assigned a specific amount of “usage rights” that corresponded to their percentage stake in the asset itself. These usage rights came in the form of non-monetary tokens, which users could exchange on a monthly basis for use of the asset. Think of it like this: imagine 4 friends all pool their money to buy a bicycle, with each friend contributing an even amount. Each friend’s ownership stake would therefore be 25%. On BlocParty, they would be given 25 tokens each toward riding the bike. Along with a series of other usage rules, this system would allow for a fair and transparent allocation of their shared asset.
In addition to ownership, we knew that our understanding of value had also become outdated and required a new framing. This was a logical continuation of our thinking around ownership. We asked ourselves, “Why would anyone want to own something in the first place?”, and the solution became clear: value. A person endeavours to own something when that thing is of value to them. Cars have value because they drive us around. Houses because they keep us safe. Value, then, is subject to the individual, but it can also be defined loosely into two categories: utility and investment. One may own a house because it gives them and their family a place to live, but they might also own it because its ability to appreciate might make them money in the long run.
We therefore had not only one, but two working definitions of value, and could therefore build functionality around these newly acquired insights. Recognizing our two opportunities to extract value, we organized BlocParty to have a feature that would let you use your asset for its practical benefits, and another feature where you could invest in your asset for its financial benefits.
In building these two functionalities, we noticed the assets that yielded the best returns on both types of value tended to be higher priced and less common. In other words, luxury items. Objects like fine art, vintage automobiles, and high-end real estate consistently delivered returns on both use and investments sides of value, and therefore became our target asset class as we built our product.
At the beginning of our journey, we didn’t realize that the ideas we had built our lives around were false. We thought they were facts, not assumptions. We thought that you could only own something outright, and that value was determined by whatever mysterious forces gave gold its gleam. But it wasn’t so. Rather, it was up to us to determine how we would define the ideas we would build our future upon. We decided that ownership between a group meant a contract between a group, and that the value of an object was determined by the practical and financial benefits it could give its user. These ideas formed the bedrock of our new reality, and provided the foundation on which we built a tool for our new world.