Fractionalised NFT’s explained: Can’t afford a whole NFT? Just buy one part instead
By: Ross Stevenson
Tags: Nft, Money Management, Blockchain, Crypto, Future Technology

Fractionalised NFT’s explained: Can’t afford a whole NFT? Just buy one part instead

The NFT movement has well and truly owned the Crypto world in 2021.

Yes, De-Fi blew our minds in 2020 and early 21 but then jpegs of bored apes turned up and the whole world went bananas. But with pieces now commanding fees in the millions, how is the everyday human supposed to get in on the action?

It’s simple really, own a fraction of one.

But how does this work? Let me explain with an example:

As of writing this, a Dogecoin NFT is in existence right now worth a cool $225 million. Yes, you read that right — nearly a quarter of a billion. For an average human, this cost is well out of reach.

Yet, what if this was broken up into thousands of tiny pieces that multiple people can purchase? This is exactly what happened in this case. Originally the piece was purchased for $4million. Then the group which had purchased it, decided to split it into billions of individual fractional shares that anyone could buy.

So this allows lots of people to have part ownership thus being part of the club and making some sweet profits from a future sale, all without having to spend millions. A buyer chooses how much they want to put up and in return they are given a percentage of shares which represents ownership.

This is the big difference between the digital and physical world. You could never break up the Mona Lisa and divide ownership without having an incomplete piece of work. However, we can do this with a CryptoPunk and many more.

Image Credit: Algorand Blog

In simple terms, that’s how fractionalised ownership works. However, let’s dig a bit deeper and find out what makes this process work, plus where you can buy a fractionalised NFT too.

Our friends over at Crypto Vantage provide a thorough walkthrough of how this works:

“Fractionalized NFTs are the new sensation and they are enabled by smart contracts. We will use Ethereum’s ERC20 and ERC721 token development standards to illustrate how fractionalized NFTs work. As a reminder, ERC721 tokens are the set standard for creating non-fungible tokens on Ethereum’s blockchain, and the ERC20 standard is used to create fungible tokens. A fungible token could be created to represent fungible items such as gold, money, or any other commodity in the physical world. A non-fungible token on the other hand can be used to represent any rare item such as a collectible game card, a trophy, or a house. Given that a fungible token is flexible such that it can be exchanged for another of its kind without losing value, a smart contract can be deployed to generate ERC20 tokens linked to an indivisible ERC721 NFT. This way, anyone who holds any of the ERC20 tokens generated can own a percentage of the rare and valuable NFT. This is how fractional ownership of an NFT can be created, and the smart contract can secure the data that differentiates the fractional NFT from other NFTs. This idea can also be applied on any blockchain network that supports smart contracts and NFTs such that the NFT is locked in a smart contract on the blockchain and ownership of the NFT is represented by multiple fungible tokens whose supply is governed by the smart contract.” So, in simple terms, the non-fungible ERC721 tokens are broken up into fungible ERC20 takes which allow any buyers to own a portion. This is both a benefit to buyers and curators. Not only do buyers get the opportunity to own a small piece of a popular item at a cost that works for them, curators also benefit through these platforms with understanding the price drive in the market and collecting fees for assets they lock up.”

How to get involved in fractional NFT’s

One of the emerging protocols where one can buy a piece of NFT’s is on the platform Fractional — and yes, that really is it’s name!

In their own words: “Fractional is a decentralized protocol where NFT owners can mint tokenized fractional ownership of their NFTs. These tokens then function as normal ERC20 tokens which have governance over the NFT that they own.”

This is a handy visual from the Fractional team on how their platform works.

The future of fractional NFT’s

With many NFT projects now commanding vast sums it would seem that the model of fractionalisation of NFT’s will become popular sooner rather than later.

Not many can afford the costs of current NFT projects, so fractionalising is a great move for inclusion in many ways, as more everyday buyers can still be involved in this emerging industry.

Most people are buying NFT’s to flip and make money. This functionality allows more people to partake in this and remove what has become some of the exclusivity in this sector.