As a Crypto Guru/Investment Expert/ Early Adopter with 5+ Years of experience in the cryptocurrency, and blockchain industry, have written 1000+ articles, and advised more than 10000+ people all around the world to scale their cryptocurrency investments. Hitesh Malviya is one of the top NFT collectors in the country, who runs an online nft art gallery India.crypto. Hitesh has acquired 70 NFTs so far from different collections, and artists. Hailing from a small town of Rajasthan, Hitesh joined JECRC, Jaipur for his B. Tech program in 2012. From that point forward his curiosity for hacking started. He began a blog on hacking in his subsequent year. Followed by a blog he began an online conversation forum and constructed an online armed force with a few of his friends and considered it the ‘Hindustan Cyber Force’. He additionally delivered a book ‘Hack decoders’ on hacking methods.
After the skyrocketing popularity of NFTs among collectors, a new trend is the emergence of fractionalised NFTs (non-fungible tokens), which allows someone who owns assets on the blockchain to break down the ownership into smaller pieces.
Furthermore, the recent craze that we have witnessed surrounding NFTs could have indeed been fuelled by the fact that NFTs empower investors, asset holders, and digital artists with a new format of blockchain-enabled ownership.
What are NFTs?
Non Fungible Tokens (NFTs) are digital assets that represent objects like art, collectible, and in-game items. They are traded online, often with cryptocurrency, and are generally encoded within smart contracts on a blockchain.
These tokens, that came into prominence after Twitter CEO Jack Dorsey sold his first-ever tweet as a non-fungible token (NFT) for USD 2.9 million, which he donated to charity. The NFTs are becoming increasingly popular among artists, sports stars, and the video game industry.
How do NFTs work?
An NFT is created, or “minted” from digital objects that represent both tangible and intangible items, including:
- Videos and sports highlights
- Virtual avatars and video game skins
- Designer sneakers
Non Fungible Tokens are like physical collector’s items, only digital. So instead of getting an actual oil painting to hang on the wall, the buyer gets a digital file instead.
When content creators create a digital asset, an NFT gives them the chance to not only show authenticity but to then profit from their work. They also get exclusive ownership rights.
What are Fractional NFTs?
Fraction is a part of big things, i.e, the number 5 can be divided into 5 fractions of 1. Similarly, NFTs can be further tokenized or broken down into fungible tokens by fractionalisation.
The process of fractionalisation of an NFT begins by locking the token into a smart contract. The smart contract then splits or fractionalises the NFT into fungible tokens. Tokens that can be exchanged with other tokens of the same type are called fungible tokens.
How to Buy and Sell Fractionalized NFTs?
Any NFTs can be divided into pieces, letting that many people buy and own parts of them. The holders can later trade their stake later for an even higher price and make profits on their initial investment.
When an NFT gets fractionalized, the pieces get locked into a smart contract. These pieces then get represented as ERC-20 tokens for anyone to buy or sell.
Earlier this year, the meme behind the cryptocurrency, Dogecoin was sold as an NFT for $4 million (roughly Rs. 29.5 crores). Later in September, when the Dogecoin NFT was fractionalised into 17 billion parts and put up for auction, its value exploded to over $220 million (Rs. 1624 crores).
Efficient Price Discovery
The fractionalizing of the art can make price discovery much more efficient as you can sell small amounts in an open auction without a reserve to give you an idea of what the total value of the NFT might be. By fractionalizing NFTs into ERC-20 tokens, it creates greater liquidity for them. This opens the markets for wider participation, letting traders discover the fair price. If an NFT can be fractionalized in a liquid market, then it can also be used as collateral for a loan for a fair market price and invest in other real-world assets. Once they pay back the loan amount, they can regain ownership of their NFT.
Benefits of owning a Fractional NFTs
NFTs can be anything digital (such as drawings, music, your brain downloaded and turned into an AI), but a lot of the current excitement is around using the tech to sell digital art.
- By fractional ownership, multiple investors can be offered a choice to co-own a piece of real estate, a costly antique item, virtual art, a collectible, or even shares and stocks.
- Artists and content creators get a better chance to monetise their work in a capital-efficient manner.
- NFTs are unique and only one of each can exist. Upon buying them, you can hold on to them and their value will increase over time.
- One of the greatest advantages of the NFT technology is that it allows artists and content creators to retain their full copyright. This is uncommon in most licensing agreements.
How are NFTs different from cryptocurrency?
NFT stands for non-fungible token. It’s generally built using the same kind of programming as cryptocurrency, like Bitcoin or Ethereum, but that’s where the similarity ends. Physical money and cryptocurrencies are “fungible,” meaning they can be traded or exchanged for one another.
Why does the world need fractionalised NFTs?
We now live in a world where the most valuable assets are no longer physical. While virtual assets have been in existence for years it’s only recently that these digital goods have emerged as a new asset class.
NFTs are unique tokenised representations of assets including real and virtual assets, while fractionalization describes the process whereby an NFT token is sub-divided into smaller unique parts that together represent the whole.
F-NFTs have emerged because NFTs were selling for vast sums of money, which reduced the market to only a small group of investors. Hence, the fractionalized NFTs were created to offer more liquidity and allow smaller investors to buy fractional NFTs of high-valued assets. But still, there is a lot of debate going on about the future of NFT.