Amidst all of the NFT craze and adoption, top quality has been their uniqueness in exclusive ownership. With Non-Fungible Tokens (NFTs), people now own pieces of art or other objects/assets of value entirely to themselves. And with the way NFTs are designed, exclusive ownership rights are a huge part of what makes the technology's proposition unique. 

As we continue to have newer ways in which NFTs are designed and presented to the market almost daily, the possibilities and boundaries of what is achievable on NFTs continue to be pushed. One of these innovations has been the ability for two or more people to own a piece of the same NFT through fractionalization.

What is Fractionalization in NFTs? 

Fractionalization in NFTs is the act of dividing the ownership of an NFT and each person interested in owning a share of that token, having controlling rights over smaller fractions of it. This way, several people can own one particular NFT. Fractionalized NFTs (F-NFTs) are increasingly becoming a regular fixture in the Non-Fungible Tokens space and this is because NFT collectors are seeing the value in owning a fraction of a very valuable NFT as opposed to fully owning a smaller not-so-valuable NFT. 

NFTs are different from cryptocurrencies in the sense that they are non-fungible tokens. What this means is that they cannot be exchanged for other NFTs. This is a problem that fractional NFTs are providing a solution to. With fractional NFTs, instead of being stuck trying to swap these tokens, a group of people can simply divide the ownership of an NFT. 

How Does Fractionalization Work in NFTs? 

As a result of the principles guiding the fractionalization in NFTs, they are mainly enabled by smart contracts. Because a major number of NFTs exist on the Ethereum blockchain, in this article, I will use Ethereum's ERC-721 and ERC-20 to explain how fractionalization works in NFTs. It is important to understand that these development standards on Ethereum can not be used to create the same kind of tokens. 

While Ethereum's ERC-721 is used to create non-fungible tokens which can be used to represent rare items like trophies, collectible game cards and even a house. The ERC-20 standard is used to create fungible tokens. These tokens represent items that are fungible like money, gold etc. Given that fungible tokens can be exchanged for other tokens of their kind, without there being any loss in value, smart contracts can be used to generate these ERC-20 tokens and link them to indivisible ERC-721 non-fungible tokens. With this technique, anyone who holds a piece of the ERC-20 token can own a percentage share of the ERC-721 rare and valuable NFT. 

Locking an NFT in a smart contract until certain predetermined conditions like the ones talked about in the paragraph above are met is the first step in fractionalizing an NFT. It is with smart contracts that the data that differentiates the fractional NFT from other NFTs can be met. In essence, an NFT locked in a smart contract on the blockchain can have its ownership represented by multiple fungible tokens that can be supplied to and owned by multiple people with governance by the smart contract.  

Imagine the Monalisa being made into an NFT and put for sale at a set price of $500 million. There are only a handful of investors who would be able to afford the iconic painting. By using a smart contract, the Monalisa NFT can be fractionalized into 10,000 ERC-20 tokens, making it possible for an investor to own a fraction of the most popular painting in history for $50,000. This will attract a larger pool of investors because $50,000 is more affordable than $500 million. 

Difference Between Fractionalized NFTs and Traditional NFTs

The difference between F-NFTs and traditional NFTs is clear for all to see. Owning a traditional NFT gives its owner full control and ownership of the NFT while owning an F-NFT means the owner owns a fraction of the whole NFT. Unlike traditional NFTs, F-NFTs reduce an investor's exposure to an asset. An investor can get a piece of an NFT he thinks has the potential to be very valuable in the future without having to risk it all by buying the whole thing. The investor benefits if his prediction comes true and if it doesn't, he only loses an amount that is commensurate to what he had invested for the fraction he got. 

In a notoriously illiquid market, fractionalization brings more liquidity. NFTs are being traded in smaller portions and an owner can sell part of their NFT while still retaining ownership over a major portion. This brings an increased level of confidence to investor behaviour (buying-wise). 

However, it is important to note that fractionalization can be reversed and an NFT that is fractional can be converted back into a whole NFT. This can be done with the help of the buyout option. This option is typically included in the smart contracts that get these NFTs fractionalized. With this option, the original owner of an NFT or an investor in the fractionalized NFT can purchase the entire fractions of the NFT which gives them the original NFT as a whole token.

Accessing Fractional NFTs

With the growing acceptance of F-NFTs, there has been a rise in the number of dedicated platforms where investors can purchase and create F-NFTs. One such platform is Tangible, a marketplace for assets that are not on the blockchain and a platform that allows crypto investors to buy, sell and trade tangible assets is at the forefront of. Tangible provides simultaneously both a marketplace for assets that are not on the blockchain and a platform that allows crypto investors to buy, sell and trade tangible assets.

They also have a product where investors with Real USD (USDR) can get in on real estate through NFTs by investing in NFTs that represent real estate like houses and lands. The USDR is primarily collateralized by yield-generating tokenized real estate. A first of its kind, USDR is a yield-bearing (8-12%), natively rebasing, and an overcollateralized stablecoin that is pegged to the US dollar. 

Fine art fintech startup Artfi, is another company playing in the fractionalized NFT space. Artfi tokenizes blue chip artworks that are created by renowned artists and sell them to the public as NFTs. With Artfi, investors can now own as little as $500 worth of a $5 million painting. Artfi accepts on consignment only blue chip artworks from sellers who have a history of consigning their artworks to only auction houses or conducting private sales. Artfi then puts up the artwork for sale to the public as NFT collections and at a price. When collectors purchase these NFTs, they purchase ownership shares in the artwork on consignment. 

With a strong focus on quality user experience, Reel Star is another company that boasts of a deep level of expertise in the blockchain industry with their cross-section of experts and formidable international team. With the use of Reel Star's vast range of products and services, people can benefit from the numerous opportunities within its "everything application" to earn and gain value with little or no technical or financial knowledge. One of these products is Reel Star's NFT licensing and smart contract capabilities that allows users to mint their own NFTs or that of others and either put them up for sale as a whole or in fractions. 

Another project playing in the fractionalized NFT space is the NFT project, Seizon. Investors can come together to own fractions of the Seizon NFTs. 

Conclusion 

Fractionalized NFTs are a great way to begin your journey into the world of NFTs as they are easy to understand and affordable. They also exist on other major blockchains apart from Ethereum. Blockchains like Polygon, Solana and Cardano are some of the blockchains you can get fractionalized NFTs on. These blockchains also have the added advantage of faster transaction speed and lower gas fees. 

Investors can purchase as little as a tenth of an NFT which can help in portfolio diversification. In conclusion, F-NFTs are levelling the NFT playing field and it can only get better from here.