- Mint the NFT: First of all, the original NFT is created on the blockchain (i.e. “minted”). For now, it’s the full, undivided digital asset.
- Lock the NFT: The NFT is locked into a smart contract (which is a self-executing program on the blockchain). This means the asset is secure and can’t be tampered with.
- Create Fractional Tokens: The smart contract then divides the NFT into smaller pieces. They are called fractional tokens. Each token represents a share of the original NFT.
- Distribute Ownership: These fractional tokens are sold to multiple buyers. Each buyer now owns a piece of the NFT and can trade their share on the blockchain.
- Governance and Rewards: Besides, fractional owners might get voting rights on decisions (like selling the NFT) or a share of revenue if the premium NFTs generate income (e.g., through licensing). But this will depend on the platform.
- Sky-High Entry Costs: Luxury assets come with luxury price tags — millions for a Picasso or a penthouse in Manhattan. Barriers of this kind mean these sweet investments are off-limits for most.
- The Illiquidity Problem: Selling high-value items can take months. Even years (if you don’t want to lower the price and look for the right buyer). Meanwhile, your money’s literally “locked” in this unit.
- The Centralization Stranglehold: Big banks, wealthy individuals, and large institutions call the shots. They decide who gets in and who stays out. It’s a system that keeps the rich getting richer (while the rest of us watch from the sidelines).
- Who controls the asset?
- What happens if the platform goes bust?
- Are there any restrictions on selling your fraction?
Have you ever stared at a $69M Beeple NFT and thought “If only”? Through fractional ownership, you can grab a slice of a similar masterpiece for $100 and own your own premium NFTs.
The fractional NFT market is exploding. Last year, it hit $4.2B in trading volume (goes without saying, it gains more traction every day). Fractional NFTs are powered up by the same cool tech as regular NFTs. BUT now you can get in on the action without emptying your bank account.
In this article, we’ll learn what Fractional NFTs are, their use scenarios—from the art industry to NFT casinos—and how to get one.
Table of contents
Fractional NFTs: What Are They & How Do They Work?
| Definition: Fractional NFTs are non-fungible tokens divided into smaller ownership units so that multiple investors can own a piece of it (instead of one person owning the entire NFT). Consider it shared ownership but on the blockchain. |
Example: Let’s say we have a digital artwork worth 1 million. This NFT then is split into 1,000 pieces. Now, you can own 1/1000 of this artwork for only $1,000. Herewith, you get bragging rights and a share of the value. Maybe even a cut if it sells for more later.
How Fractionalization Works Using Blockchain Technology
Here’s how it all works step by step:
Why Traditional Asset Ownership Is Broken
Traditional asset ownership has some serious flaws that keep an average person locked out, including:
How Fractional NFTs Are Changing the Game
Check out this comparison:
| Problem | Traditional Ownership | Fractional NFTs |
| High Entry Costs | Millions required | Buy for as little as $10 |
| Illiquidity | Months or years to sell | Trade instantly on NFT markets |
| Centralized Control | Controlled by the elite | Open to anyone with internet |
How to Get Started with Fractional NFTs
Now, let’s break the process down step by step.
Step 1: Hunt for Trustworthy Platforms
First of all, you need to find a platform you can trust. For starters, I recommend checking out places like Masterworks or Rally.
Pro tip: Hop onto Reddit, X, or review platforms like comprarebitcoin.com and see what other users say. Real experiences can save you a ton of headaches.
Step 2: Play Detective with Asset History
Once you’ve found a platform and set your eyes on a particular asset (or several of them), look at its history. Are there any controversies? How’s its past performance?
For example, let’s say you’re eyeing a fraction of a rare Pokemon card. You might want to check its auction history first.
Step 3: Crunch Those Numbers
Platforms aren’t running charities, so they’ll have fees. Some charge 2.5-5% per transaction. Others might have yearly maintenance fees. Compare those fees and remember – the cheapest option isn’t always the best.
Besides, figure out how easy it is to resell your tokens. You want something as liquid as water.
Step 4: Decode the Smart Contract
Think of smart contracts as the rules of the game. You need to know them before you get to play.
Look for things like:
If something looks fishy, ask questions.
Step 5: Start Small, Dream Big for Premium NFTs
Always start small. Begin with $50 or $100. It’s enough to test the waters without putting too much at stake. As you get a hang of it, you can gradually build your portfolio.
Some platforms let you start with as little as $10.
