Fractional NFTs: Pros & Cons of Fractional Ownership

NFTs are booming for a couple of years now. It is starting to establish itself as a mainstream marketing option in the digital economy. But there is common confusion about how the ownership works? and how is the NFT Art owned by an individual or can it have multiple owners? There are many questions in a beginner’s mind. So, here in this article we will address those questions and explain fractional NFTs as well.

The majority of NFTs have single ownership. however, there is a new dynamic that says it can have multiple owners also, this, in general, is referred to as fractional NFTs.

What are Fractional NFTs?

Fractional NFTs are simply the split pieces of a core NFT. This means that different users get a piece or say a percentage of ownership of the original NFT Art. These split NFTs are said to be a new way of democratizing the process of owning the NFTs.

Fractional NFT aims for making NFTs more affordable. Doing so can potentially cover regular investors or art fans into purchasing an NFT art.

Fractional Ownership

Fractional NFts directly provide Fractional Ownership.

The fractional ownership model for NFTs suggests a split of an NFT asset amongst different parties. Each party owns a small percentage of the piece.

This model design was made to make the NFT Space more accessible to the real world. The number of art pieces that the NFT splits into can vary. Few fractional ownership NFTs are split into billions of pieces whereas, others are split into a handful of pieces.

The split decision is made according to a creators intentions. That is, how much reward or profit one shall receive depending upon the percentage of the NFT an individual holds.

Are Split pieces fungible?

Each of the split pieces is fungible. This means that all the pieces are treated as equal. In addition, they can all be traded for each other. Hence, you will have the ability to buy and sell these split NFT pieces like any other NFT.

The Split, it’s like a pizza, you can split the pieces and get a taste of the ingredients within with the smallest pieces.

Use of split NFT Tokens

After the split, each Fractional NFT can be considered a token. These tokens operate on smart contracts. Smart contracts help owners observe the effects of Fractional NFTs Ownership instantly.

Smart Contracts Role in Fractional NFTs

Smart contracts execute different if/then statements. Once a condition is met the blockchain gets updated for recording the transaction.

For instance, imagine a reward is paid to all members of the Fractional NFTs. A smart contract will make sure that every token receives the same payment at the same time while the NFT sells.

Further, smart contracts help in standardizing the way that Fractional NFTs can be exchanged. This sets up an even playing ground for every NFT enthusiast. However, if an individual manages to buy all the split pieces of the NFT, he/she shall have the sole ownership of that Fractional NFTs. Although, it’s unlikely that this could happen.

Fractional-NFTs

Pros of Fractional Ownership

Here are some of the benefits of owning fractional ownership or say fractional NFTs:

Affordable

As mentioned earlier fractional NFTs aim to make NFTs affordable. The reason is simple, there are many NFT sales where NFTs sold for huge prices example: Beeple.

Beeple’s art was sold for millions and that type of price is out of range for the majority of people. Hence, breaking down an NFT into pieces will help to lower the price, and encourage people to invest in NFTs.

Instant Access

Fractional NFTs provide users with Instant access. Users won’t have to wait for days or weeks to complete the deal which is quite different from buying a traditional piece of art. In addition, owners can add the purchase to their portfolio as soon as they buy a share of NFT.

Real-world situation representation and Sharing of profits

Fractional ownership displays a more realistic view of ownership and creation. Hence, every individual will be able to get a percentage of NFT, so the profits will also be shared.

Improvement in Price Discovery

This concept relates to the traditional share market. More the participants easier to buy and sell an item. Thus, the split pieces will have more investors involved and will provide a better understanding of what the asset might be worth.

More Liquidity

If the number of transactions occurring will increase it will be easier for NFT investors to buy and sell NFTs.

Fair Investment opportunity

The Fractional NFTs will allow common investors to hold pieces. This will make it tough for a single person to manipulate the market even with sheer financial strength.

Cons of Fractional Ownership

We know after reading the pros you think that Fractional NFTs are a great idea, but hang on, hold your horses. There are a few downsides to fractional ownership. Some of these cons are:

Decision making gets tough

If you are a sole owner of an NFT, you have the freedom to decide how to use it. But, with fractional ownership, there are many owners involved i.e. if a piece is split into 1000 then 1000 owners. So, while selling the NFT the percentage of the piece you own will decide how much your vote counts.

Unclear Rights

It’s unclear what rights owning a fractional NFT can provide. This means, if you own a Fractional NFT it is unclear that if you can use it or not. This confusion has led to many legal issues.

Risk and Legal Issues

The NFT Market is super volatile. More costly an NFT, the more chances of price fluctuations. The legal issues are also a challenge. The Fractional ownership concept is new and because of that, it’s hard to predict the reaction of legal authorities like banks and governments.

Whenever there is an NFT Scam it’s unclear who is going to pay the compensation or what are the legal steps to approach the matter. This shows with fractional ownership the legal aspect will get more complicated as more users will be involved.

Gas Fees

If an individual wishes to fractionalize and NFT, there are gas fees for that. These fees are so expensive that it only justifies the investment if an asset is valuable enough.

How to verify ownership of an NFT?

It is easy to verify who owns a particular NFT. This is because they are stored on the blockchain. Each of these NFTs has a unique hash number. You can easily find out which wallet has the NFT you are verifying and also the smart contracts will help you verify.

There are a few websites that can help you with the verification. One of them is Etherscan.

Finally, as long as you have the hash number you should be able to get basic information about the NFT token like where it is and how much it is worth.

Recent Fractional NFTs

It is important for beginners to note that this technology is still in its infancy. So, there aren’t too many fractional NFTs available as of now. But if the trend for fractional NFTs starts gaining momentum it might start to evolve and become a well-established domain. Here is a recent fractional nft project detail,

Logan Paul Fractional NFT,

This Fractional platform allows collectors have access and co-ownership of the rarest items in the world. Liquid Marketplace addresses the impressive divide between collectors through fractional ownership. This means, it basically allows die-hard fans to own a unique and legendary item without being priced out.

What other platforms to buy fractional NFTs?

There are a few platforms that are beginning to authorize users to make or purchase fractional NFTs. These platform options include fractional.art and Opensea. 

Future of Fractional NFTs

At the present, fractional NFTs are available for you to buy. Yet, there is still a lot of discussion in the community about how they should proceed moving forward. 

Although, the future of fractional NFTs looks bright. It can be an exemplary way of democratizing the market and letting more people trade in NFTs.

NFTHI’s Take on Fractional NFTs

While there may be cons to this innovative approach, there are pros that prove that this niche can present itself as a proper Market ecosystem.

Fractional NFTs will face legal challenges and regulatory issues no doubt, but they also have a lot of potentials to grow the NFT Space.

There is a possibility that they will be able critical in bringing change to the future of finance i.e. making it easier for regular people to invest in costly assets like art, music albums, etc.


Hungry for more information?

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NFTHI does not recommend any kind of Investment in NFTs or NFT trading. All the strategies are merely educational references.

Conduct thorough research before you start with NFT trading.

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