What are Frationalized NFTs?

Posted by alicejenifferze on May 4th, 2022

Fractionalized NFTs are forging the next chapter of this fast-growing sector in crypto, blockchains, and decentralization. NFT fractionalization is simply the act of dividing the ownership of an NFT into smaller fractions. This makes it possible for several people to own a single NFT. 

Given that an NFT, unlike a cryptocurrency, is a non-fungible token, meaning it cannot be exchanged for any other asset of its likeness, fractional NFTs push the boundaries by making it possible to divide ownership of an NFT. For instance, if you have the original painting of the famous Mona Lisa, not only is it impossible to exchange that painting for another type of painting, but it is also impossible to divide that painting into smaller pieces. 

How Do Fractionalized NFTs work? 

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. 

NFTs have gone to the nook and corners of the market and it started disrupting many industries out there. Bitdeal, being the leading NFT Development Company provides all kinds of NFT Developement services.

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