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Don't know what are Fractional NFTs and how they work but still want to invest in a popular NFT with a limited budget? With F-NFTs or Fractional NFTs, you can do that!
As it sounds to be - Fractional NFTs are affordable digital assets that anyone can invest in - and enjoy a profit from that Fractional NFT as the NFT value increases.
Now if that sounds like a smart and accessible investment plan to you, it's time you dive deeper into the details of what are Fractional NFTs.
So without further ado, let's explore Fractional NFTs and how they work.
What Are Fractional NFTs?
Being a growing and popular trend in the NFT industry globally - Fractional NFTs (F-NFTs) are shares of a single NFT.
You divide the initial non-fungible token (which implies it is not equal to any other token) into many fungible tokens (ERC-20 tokens). These divided tokens then reflect a claim on the original NFT that will be divided into fractions.
Precisely, this approach is the digital equivalent of obtaining an IOU saying, "you own X% of this Azuki or Cool Cat."
Smart contracts facilitate the fractionalization process of NFTs. So once you get a fraction of an NFT, you can later swap the fractional tokens (the digital IOUs) for cash on a marketplace - acquiring a profitable amount in the future compared to your investment.
Now that's an exciting approach to make NFTs and their profitable benefit as digital assets accessible to everyone. Not to mention how this approach also unlocks liquidity for NFTs, increasing their value as the fractions get sold.
So now that you know what are Fractional NFTs, you can easily collect them and add to your digital asset's value.
How Do Fractional NFTs Work?
As mentioned earlier, fractions of NFTs are acquired with the help of smart contracts. Now based on the instructions provided by the NFT owner/artist, the smart contract subsequently divides the ERC-721 token into various fractions in the form of ERC-20 tokens.
The owner/artist then specifies the production quantity of ERC-20 tokens and their features, metadata, and price. Once the NFT is divided into fractions demanded by the owner, each fraction, or ERC-20 token, represents a portion of the total NFT ownership. The fractions are sold at a defined price for a set time or until exhausted.
Notably, NFTs and fractionalized NFTs aren't just for the Ethereum blockchain. Instead, every blockchain network that supports smart contracts and NFTs can allow fractionalization.
Specifically, these smart contracts are supported by alternative networks such as Polygon (MATIC), Cardano (ADA), and Solana (SOL) and can be used to create and transfer NFTs. Furthermore, these networks also have the advantage of quick transaction times and no gas prices.
In contrast to these blockchain networks, today, new and emerging Web3 platforms primarily focus on creating, listing, and providing fractions of an NFT like Ommniverse. These platforms make F-NFTs easily accessible without getting familiar with such blockchain networks.
Such platforms allow creators and investors to purchase popular and emerging NFTs in fractions - without going through a complicated process. Another noteworthy factor about such dedicated Fractional NFT platforms is they have automated creator tools for new creators willing to participate in the NFT world and become owners/artists of Fractional NFTs.
Differences Between Fractional NFTs and Traditional NFTs?
If you're new in the NFT world, it may be difficult to differentiate between F-NFTs and traditional NFTs and evaluate which one is worth investing in. So what are the differences between Fractionalised NFTs and Traditional NFTs?
It's simple: Fractionalized NFTs, or F-NFTs, indicate percentage ownership or fractions of a whole NFT. So the distinction is obvious: an NFT is a whole, whereas F-NFTs are simply fractions of the entire artwork turned into an NFT.
Advantages of Fractional NFTs
Once you understand what are Fractional NFTs and how do Fractional NFTs work, it's time to figure out whether they are worth your investment. How do you evaluate that when so many digital assets investment options are available in the expanding Web3 industry? Now, - there's no confusion a set of promising advantages can't solve.
Hence, it's better to understand what advantages of Fractional NFTs come along when you invest in such assets. Some prominent advantages of F-NFTs, include the following:
F-NFT Benefits for Holders
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They Are Reversible Assets
A prominent one of the advantages of Fractional NFTs is that fractionalization is reversible, and F-NFTs can be turned back into complete NFTs. So these digital assets don't always have to be divided into fractions and owned by multiple investors.
How does that happen? F-NFTs often include a buyout option in their smart contract that fractionalizes an NFT. This option enables an F-NFT investor to purchase all the fractions and unlock the original NFT.
So once you own all fractions of one such affordable and worthy digital asset, you can transfer a particular number of ERC-20 tokens from a collection back to the smart contract to activate the buyout option. This transfer will launch a buyback auction for a set time when the other F-NFT owners can decide whether to transfer.
If the other F-NFT owners approve the buyout within the set time, the fractions are immediately returned to the smart contract, and the buyer acquires full ownership of the NFT.
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Expensive NFT Ownership
The major advantage for Fractional NFT holders is the ability to own a percentage of a larger and more expensive complete NFT via platforms such as Ommniverse. Depending on the NFT and the platform from which the Fractional NFT was purchased, the holder may be granted exclusive access to the NFT community and other perks, such as voting rights.
F-NFT Benefits for Creators
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Better Creator Visibility
Because fractionalization allows digital creators to reach a larger audience in a more liquid marketplace, they can gain even more online exposure.
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Easy NFT Creation
Another one of the advantages of Fractional NFTs for creators is the assistance offered by platforms dedicated to F-NFTs. As mentioned earlier, popular and emerging platforms like Ommniverse are all about making Fractional NFTs easy to create and sell the digital asset for creators. So with the presence of smart and automated creator tools, you can easily list your NFT in fractions on the platform and make money.
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Enhanced Liquidity
Popular collections tend to skyrocket in price as the popularity of NFTs grows. As a result, certain NFTs are only available to a few affluent investors. You can divide ownership of ERC-721 or ERC-1155 tokens into numerous ERC-20 tokens using Fractional NFTs, making them more inexpensive.
Summary
In today's digitally-driven world, digital asset ownership is becoming a norm. Hence, to be a part of the trend and secure your future finances, owning a popular digital asset in an affordable form, like F-NFT, can be a smart investment decision.
Considering that, we have listed everything about Fractional NFTs and how they work in this detailed guide. We hope you find all your answers!
Author Bio
Sophia Wilson is an experienced content writer specializing in crypto-based topics such as fractional NFTs and crypto back. Her work has been featured in numerous publications, and she is passionate about sharing her knowledge and educating others about the potential of cryptocurrencies and blockchain technology. When she's not writing, Sophia enjoys practising yoga and spending time with her family and pets.
Disclaimer
The views and opinions expressed in this article are solely those of the authors and do not reflect the views of Bitcoin Insider. Every investment and trading move involves risk - this is especially true for cryptocurrencies given their volatility. We strongly advise our readers to conduct their own research when making a decision.