How the fractionalisation of luxury assets is opening the doors to what used to be deemed as inaccessible assets
Most of us aren’t rich enough to dream of getting our hands on one of Monet’s sweeping “water lily” paintings, much less actually investing in one. Considered masterpieces of impressionism, these cerulean waterscapes are the stuff of museums, Hollywood homes and private investment banks. They are simply out of most people’s reach.
Luxury items – the trinkets of the world’s rich and famous – are fascinating in the abstract, but not the focus of any real, concrete interest for everyday people. Famous artworks, valuable sculptures, luxury cars and unique timepieces are worth reading about in an article, ogling on social media or gossiping about at a dinner party, but not worth considering as serious asset classes. After all, luxury items like these are almost by definition inaccessible, aren’t they? Who would waste their time even thinking about trying to own one? Well, maybe it’s time we start.
The Blockchain Revolution
Blockchain technology is changing the way auction houses, art galleries and other companies market and sell high-end luxury products. Most people confuse blockchain technology with cryptocurrency, one of the first products to be created using blockchain. But don’t confuse the chicken with the egg: a blockchain is a decentralized, distributed, public digital ledger that records transactions across different computers. A blockchain cannot be altered retroactively, thereby creating a permanent, traceable and documentable history of any and all transactions made with its ledger.
Simply put, blockchain technology makes it possible to divide the value of a high-end luxury product (like a car or a watch) into tens, hundreds or even thousands of smaller, affordably-priced lots, essentially passing purchase power from one pair of wealthy hands into many pairs of middle-class hands. In other words, blockchain democratizes acquisition. By dividing one expensive lump sum into smaller, much less expensive sums, it opens up purchase to a far larger pool of interested parties.
Think about that for a minute. Imagine owning blockchain-guaranteed shares in Picasso’s Guernica, or Rodin’s The Thinker, or Steve McQueen’s Rolex Submariner? With division insured and fully recorded via blockchain technology, there would be no risk of you losing or having your shares stolen away. You would own your share forever.
Of course, there are downsides. You own a famous artwork, but you are only one of thousands of invested owners. You can’t display it in your living room. You can’t hold it up to the light and examine canvas details. You can’t smell the century-old oil paints it was made with.
But you can sell your shares, and you decide the price. Different companies take different approaches to this kind of financial democratization. Some hold the blockchain-divided item until a majority of its owners vote to sell. Others monitor the markets and sell the item at the first available opportunity, reimbursing owners afterward. But no matter what happens to the item, your share is protected by the very inalterable nature of blockchain technology itself.
Eventually, just about every luxury item in the world is put up for sale one way or another. Any profits deriving from that sale are divided along the same lines as the blockchain shares into which it has been divided. That means not only do you recover your individual investment, but part of the profits from the new sale as well.
fractionalisation of luxury assets: Endless possibilities…
There’s something inherently thrilling about this kind of democratization of purchasing power. What other areas of our economy might benefit from division into blockchain technology shares? What other avenues that have long been the private province of the wealthy and connected might open up to the masses?
Consider for example a popular public park proposal put forth in a major metropolitan city. Despite widespread public support, the park is never realized because the city simply doesn’t have enough money to fund the project. Imagine a group of “small-time” investors getting together to fund it, dividing the cost of realizing what is now a private park into thousands of shares that are picked up and purchased by people within the communities that will benefit most from the nature preserve once it’s realized. These shares could become passes for entry into the park, bought and sold between people who move in and out of the area, or passed on to children and grandchildren so that future generations can continue to benefit from the original investment.
It’s a brave new, blockchain-registered world out there with the fractionalisation of luxury assets!