Crypto newcomers are often surprised by the fact that they don’t have to buy a whole Bitcoin, Ether, or any other cryptocurrency. Much like the US dollar is divisible into one hundred cents, Bitcoin is divisible into one hundred million sub-units. These units are known as Satoshis, in honor of Bitcoins’ enigmatic creator, Satoshi Nakamoto.
Most digital currencies are divisible in a similar manner, though there are a few notable exceptions, like NEO. The aspects of divisibility allow a digital asset to have several owners.
In one of our previous articles, we explained how tokens backed by real-world assets have the potential to transform the way people do business. Divisible asset-backed tokens bring exciting opportunities in the form of fractional ownership of real-world assets that would otherwise be indivisible. Still, indivisible asset-backed tokens have the potential to facilitate fractional ownership.
The concepts of divisible and indivisible tokens
Let’s consider the example of gold bullion. The bullion could be backed by a single token, divided into one hundred sub-units. Therefore, one hundred different individuals could own a piece of gold, worth 0.05 of bullion each. In another instance, the same gold could also be backed by just ten indivisible tokens, implying the minimum stake for any single token holder would now be 0.5 of bullion.
The use of divisible and indivisible tokens may bring numerous advantages or disadvantages based on the underlying asset. For instance, if the asset’s initial owner wants to reclaim ownership in the future, it may be challenging to buy back sub-units of tokens from a large investor pool. But, for some types of assets, opening up a larger pool of investors may bring the much-needed liquidity.
Basically, fractional ownership of otherwise indivisible assets creates unprecedented opportunities for businesses and people alike. Below are just a few examples.
Unlike the previous generations, millennials all over the world are facing barriers to property ownership. In the United States, property ownership among millennials has declined by 8% compared to Generation X. The rising student debts and increasing real estate prices mean that the market does not favor most people. Therefore they end up missing the economic benefits of investing in the real estate sector at a younger age.
Real estate-backed tokens allow those priced out of the real estate industry to benefit from the buoyant sector’s potential gains. If a construction firm wants to raise funds to build a new apartment block, they can sell tokens representing shares of the property. When the building is complete, the token holders will qualify for a share of any profits generated from renting the building. If property prices in the locality spike, then the investors can also sell their shares at a profit.
Access to agricultural machinery is a challenge for small and medium-scale farmers. For a farmer who owns perhaps 30 hectares, purchasing a piece of machinery, like a combine harvester can a crippling capital investment, considering it will lay idle for much of the year. Although farming in developed countries is often done on a large scale, many third world countries rely on small and medium-scale farmers who still manage to supply 70% of the world’s food.
Fractional ownership could provide a far better solution to small and medium-scale farmers. Though a group of small and medium-scale farmers can purchase a piece of agricultural machinery based on a “Gentleman’s agreement” or a legal contract, tokenization, on the other hand, offers the potential for provable ownership in a share of agricultural machinery without involving third parties, like lawyers.
The examples discussed above are just a few of the possible use cases. The idea of fractional ownership can also be applied to many other types of assets like pieces of art, players, sports teams- the possibilities are almost endless. Dividing indivisible assets using tokens will create new opportunities for wealth creation and bring liquidity to otherwise illiquid assets.
Tokenizer is a blockchain investment banking platform for investing, fundraising, and trading in Asset-Backed Tokens (ABTs). With our offerings, you can easily tokenize your assets with fast-to-implement resources that will empower you to modernize your services.
Are you in need of raising funds or investing in Asset-Backed Tokens? Apply to raise funds in Tokenizer by visiting our platform here. If you want to invest in ABTs, contact us by creating an account here. Lastly, if you want to liquidate and trade in ABTs, we have a decentralized exchange designed for you. Stay safe, your health matters a lot!