Fractional NFTs: Guide to Ownership & Investment
Written by  Daisie Team
Published on 9 min read

Contents

  1. What are Fractional NFTs?
  2. How do Fractional NFTs work?
  3. Why invest in Fractional NFTs?
  4. How to buy Fractional NFTs
  5. How to sell Fractional NFTs
  6. Risks and rewards of Fractional NFTs
  7. Common mistakes when investing in Fractional NFTs
  8. Future of Fractional NFTs

Imagine an artwork, a unique piece that you admire but can't afford on your own. What if you could own a piece of it? This isn't about cutting a painting into pieces. Welcome to the world of Fractional NFTs, a new wave in the crypto-sphere. This blog will take you on a journey, exploring the concept of NFT fractionalization, from understanding what they are, how they work, to the pros and cons of investing in them, and much more. So, get ready to dig into the nitty-gritty of Fractional NFTs.

What are Fractional NFTs?

Simply put, Fractional NFTs are Non-Fungible Tokens (NFTs) that have been divided into smaller pieces, or fractions. This division allows multiple people to have ownership of a single NFT. It's like having a slice of your favorite pizza—you get to enjoy it without having to buy the whole thing.

Let's break it down further:

  • NFTs: These are unique digital assets that represent ownership of a unique item or piece of content. They are like the autographed sports memorabilia of the digital world. Each one is different and cannot be replaced with something else.
  • Fractionalization: This is where the magic happens. It’s when an NFT is divided into smaller parts. Think of it this way: a pizza is still a pizza whether it's whole or divided into slices. The same applies to NFTs.

By exploring the concept of NFT fractionalization, we can see that Fractional NFTs have pushed the boundaries of what's possible in the world of digital asset ownership. Suddenly, an expensive, out-of-reach NFT can become accessible to many by dividing it into more affordable fractions.

So, if you've ever dreamed of owning a piece of digital artwork, a tweet, or even a virtual plot of land, Fractional NFTs might be your ticket in. But before you dive in, let's understand how these Fractional NFTs work.

How do Fractional NFTs work?

So, how does this pizza slicing of NFTs actually work? Is it as simple as chopping up a digital file? Well, not quite. The process involves a little bit more than that.

Firstly, the original NFT is locked into a smart contract. This contract, which is a set of coded rules and functions, effectively holds the NFT. It's like a digital vault that keeps the NFT secure. This way, the original NFT remains intact and unaltered.

Once the NFT is locked in, the smart contract then issues a set number of fractional tokens. These fractions are what you and I, as potential investors, can buy. Each fractional token represents a portion of the ownership in the original NFT.

So instead of buying a whole NFT, you're buying a piece of it. Just like when you buy a slice of pizza, you're buying a piece of the whole pie. And don't worry, you won't need a digital knife or scissors. The smart contract takes care of all the slicing.

What's cool about this is that each fractional token can be bought, sold, and traded independently, just like any other crypto token. But remember, even though you own a fraction, it doesn't mean you can take that piece and run away with it. The original NFT is still locked in the smart contract. It's like owning a piece of a pie that you can't actually take out of the pie dish. But, you still get to enjoy the benefits of owning a piece of it.

Are you getting the hang of it? Exploring the concept of NFT fractionalization can be fun, right? But it's not just about fun, it's also about opportunities, and that's what we're going to delve into next.

Why invest in Fractional NFTs?

Now that we've dipped our toes into the pool of fractional NFTs, let's dive into why they might be a good investment choice. When it comes to exploring the concept of NFT fractionalization, this is the part that often piques most people's interest.

Firstly, fractional NFTs make the world of NFTs more accessible. You know how the prices of some NFTs can make your jaw drop, right? I mean, who has a few million dollars lying around to buy a piece of digital art? But with fractional NFTs, you don't need a fat wallet. You can buy a piece of the action for a fraction of the price, literally. So, if you've been wanting to get into the NFT game, but felt priced out, fractional NFTs could be your ticket in.

Secondly, it provides a way to diversify your investment. Just like you wouldn't put all your eggs in one basket in the traditional investment world, the same logic applies to NFTs. Instead of owning one expensive NFT, you can own fractions of multiple NFTs. This spreads your risk across different assets. In other words, don't put all your digital eggs in one pixelated basket.

Thirdly, there's the potential for profit. If the value of the original NFT goes up, the value of your fractional NFT could also go up. So, if you've chosen wisely and the stars align, you could see some nice returns.

But let's not get too carried away. Like any investment, there are risks involved. And that's something we'll explore in a later section. Because, as we all know, not every pizza slice is created equal.

How to buy Fractional NFTs

Now, let's get to the fun part: buying fractional NFTs. If you're exploring the concept of NFT fractionalization and have decided to take the leap, here's a basic roadmap. Buckle up, it's quite a ride.

Step 1: Choose your platform. There are several platforms where you can buy fractional NFTs, like NIFTEX, Fractional, and Unicly. Each has its own features and benefits, so take your time to find one that suits your needs.

Step 2: Set up a digital wallet. Before you can start buying fractional NFTs, you need a digital wallet to store them. Metamask, Trust Wallet, and Coinbase Wallet are some popular options. Make sure to choose a wallet that is compatible with the platform you've chosen.

Step 3: Buy some cryptocurrency. Most platforms require you to buy fractional NFTs with cryptocurrency, like Ethereum. You can do this directly through your digital wallet.

Step 4: Browse the marketplace. Look through the fractional NFTs available for sale. You'll find a range of items: from digital art to virtual land parcels. Do your research and choose wisely.

Step 5: Make your purchase. Once you've chosen a fractional NFT, it's time to buy. Follow the platform's instructions — it's typically as simple as clicking 'buy' and confirming the transaction in your digital wallet.

There you have it, your first slice of the NFT pie. But remember, buying is only half the battle. Knowing when and how to sell your fractional NFTs is equally important, if not more so. So let's delve into that next.

How to sell Fractional NFTs

Great, you've bought your first fractional NFT. Now you're likely wondering: how do I sell it? Selling fractional NFTs can be a strategic move if you're exploring the concept of NFT fractionalization as an investment opportunity. Here's a step-by-step guide to help you navigate the process.

Step 1: Decide on the right time to sell. Timing is everything in the world of NFTs. Keep a close eye on the market trends and sell when you think the value of your fractional NFT has peaked. This can be a bit of a guessing game, but stay informed and trust your gut.

Step 2: Choose where to sell. You can usually sell your fractional NFTs on the same platform where you bought them. Some platforms also allow you to sell your NFT shares on secondary markets. Again, your choice will depend on where you think you can get the best price.

Step 3: Set your price. Pricing your fractional NFT can be tricky. You'll want to consider factors like the current market value, demand, and the price of other similar fractional NFTs. It’s a balancing act — you don't want to undersell, but setting the price too high might deter potential buyers.

Step 4: List your fractional NFT for sale. Once you've decided on a price, you can list your fractional NFT for sale on your chosen platform. Make sure to provide all the necessary details and be transparent about the terms of the sale.

Step 5: Complete the transaction. Once a buyer makes an offer, you can accept it and complete the transaction. The platform will guide you through this process.

And voila! You've just sold your first fractional NFT. Remember, the key to successful investing in fractional NFTs is patience and strategy. So, take your time, do your research, and make informed decisions.

Risks and rewards of Fractional NFTs

Exploring the concept of NFT fractionalization can be exciting, but it's not without its risks and rewards. Let's take a closer look.

Rewards

One of the biggest rewards of fractional NFTs is accessibility. High-value NFTs can be out of reach for many people. By breaking down an NFT into smaller, more affordable pieces, more people can own a piece of the pie - or in this case, digital art!

Another reward is the potential for profit. If the NFT increases in value, so does each fractional share. This allows for the possibility of a high return on investment.

Lastly, because fractional NFTs are still a relatively new concept, early adopters may benefit from the first-mover advantage.

Risks

That said, there are risks to be aware of. One is the volatility of the NFT market. Prices can skyrocket or plummet in a matter of hours. This instability can lead to potential losses if you're not careful.

Another risk is liquidity. While fractional NFTs are generally more liquid than whole NFTs, finding a buyer for your share might still be challenging, especially if the NFT isn't well-known or sought-after.

Lastly, as with any investment, there's always the risk that you could lose your investment. While the potential rewards can be great, it's important to only invest what you can afford to lose.

As you continue exploring the concept of NFT fractionalization, remember to weigh these risks and rewards. Making informed decisions can help you navigate the world of fractional NFTs more safely and successfully.

Common mistakes when investing in Fractional NFTs

When exploring the concept of NFT fractionalization, it's easy to make some common mistakes. Let's discuss some of these, so you can avoid falling into the same traps.

Not doing enough research

Just as you wouldn't buy a car without checking out its features and reviews, you shouldn't invest in fractional NFTs without understanding what you're getting into. Research the NFT, its creator, and its potential value. This will help you make an informed decision.

Ignoring the market

The NFT market can be unpredictable. Prices can fluctuate wildly, and what's popular today might not be tomorrow. It's important to keep an eye on market trends and adjust your strategy accordingly.

Not considering the risks

It can be easy to get swept up in the excitement of fractional NFTs and forget about the potential downsides. Remember, just as there's a potential for high returns, there's also a risk of loss. It's essential to consider both sides of the coin.

Investing more than you can afford to lose

As we mentioned in the previous section, the world of NFTs can be volatile. While there's a possibility of making a profit, there's also a chance you could lose your investment. It's wise to only invest money that you can afford to lose.

By being aware of these common mistakes, you can navigate the world of fractional NFTs more confidently and hopefully, more successfully. Remember, knowledge is power!

Future of Fractional NFTs

While we've been exploring the concept of NFT fractionalization, you might have wondered what the future holds for this new digital asset class. It's a good question! So, let's take a look at some of the possibilities.

Increased Accessibility

One of the most significant impacts of NFT fractionalization is its potential to democratize the ownership of digital assets. With fractional NFTs, even high-value digital assets become accessible to everyone. This means more people can participate in the NFT market, which could lead to its exponential growth.

Enhanced Liquidity

Liquidity — or the ease with which an asset can be bought or sold — is a key factor in any investment. Fractional NFTs could significantly improve the liquidity of the NFT market. Since fractional NFTs are more affordable, they are likely to be bought and sold more frequently, making the market more fluid.

Potential for New Investment Strategies

As the NFT market evolves, so do the strategies for investing in it. Fractional NFTs could open up new avenues for investment strategies. For example, investors could diversify their portfolios by investing in fractions of multiple NFTs rather than putting all their eggs in one basket.

It's an exciting time to be involved in the world of NFTs, and fractional NFTs, in particular, seem poised to play a significant role in its future. However, as with any investment, it's important to do your homework and understand the risks before diving in. As we move forward, keep an eye on this space — it's one to watch!

If you're looking to dive deeper into the world of NFTs and how they can benefit artists, consider checking out the workshop 'Approaching NFTs as an Artist' by Dennis Mabuka. This workshop will provide valuable insights on how artists can navigate the NFT landscape and make the most of this new form of digital art ownership and investment.