What is the Role of Blockchain in Fractional NFTs How does ERC-1155 work

Role of Blockchain in Fractional NFTs

NFTs are far from a fad, unlike what critics of this revolutionary technology may force you to think, with an abundance of innovation, profit opportunities, and other noteworthy facets for success that the industry that flourished at the height of the Crypto Craze back in 2021 could offer.

Being a prime venture for innovation as the world shifts from web2 to web3, NFTs, rain or shine, are still seeing massive improvements upon their most basic uses and offerings, from willy-nilly offerings of stupendous profits just from image purchases to now providing features that could change the course of a project and rally die-hard fans towards a common goal. It would be an understatement to say that NFTs are not a cultural phenomenon of the internet.

In any case, across the vast expanse of this relatively uncharted land, there’s a looming upheaval of the paradigm of NFTs, providing even more opportunities for growth, opportunity, and scalability while considering the common Cryptobro’s financial welfare at the same time.

All of this is thanks to Fractionalized NFTs and ERC-1155.

One at a Time

First Off, what are Fractional NFTs?

With regular NFTs, one person owns a specific Non-fungible, and only one entity at a time could own any particular NFT. While this is great for personal ownership and collection, it doesn’t consider the ever-increasing price gap of NFTs and what a regular investor could afford. Thus, this creates a dilemma where it’s either you buy an NFT at floor price when it launches or not buy it at all because it will become so expensive that buying one would be ridiculous.

With Fractionalized NFTs, you’d feel like a shareholder of an enterprise. You could be part of the fun as each NFT could be divided into smaller, tradable fractions, representing partial ownership of the entire NFT, as each fraction of the NFT embodies an equivalent value in terms of percentage and rights.

Well, how do Fractional NFTs Work?

Fractionalizing an NFT is a two-step process, but it doesn’t end there. Apart from the process of dividing the NFT into equal parts of value, we also have to consider the future implications that the NFT will bring once it gets out of the ringer and publicly launched. So, let’s walk through the process, the applications, and the benefits that Fractional NFTs carry with them.

Foremost, the process of fractionalization begins with the division of the NFT into equal parts and values in terms of units. This process is typically done through specialized platforms/networks/marketplaces that are dedicated to facilitating fractionalization. Then, the NFT’s ownership will be represented through tokens or shares, often thanks to blockchain technology.

Next, each fractional share is tokenized, usually as ERC-20 Tokens on the Ethereum blockchain which are then made available for purchase, sale, and trade independently on proprietary Decentralized Exchanges (DEXs) or other platforms.

As with most NFTs in this day and age, Fractional NFTs come with governance features. Token holders, much like full-fledged NFT holders, will get voting rights in determining the future of the NFT or the NFT project itself. They may also be given entitlement to a share of any revenue generated by the NFT, such as proceeds from licensing, royalties, or sales.

Why are Fractional NFTs Great?

Fractional NFTs aren’t just an accessory feature; The concept is the future of ownership as the NFT industry shifts into a multi-billion-dollar industry with tons of monetary value and future use-case. Thus, it’s only fair we know, as early as now, what’s in store for the Common Joe when Fractional NFTs become ubiquitous.

Fractional NFTs could increase liquidity and access among projects in the space, enabling everyone to invest in high-value NFTs with their limited budgets. This benefit is thanks to fractional shares carrying fractions of the NFT’s cost with equal value and rights! Altogether, the Fractionalization of NFTs democratizes and decentralizes NFT ownership, making it even more reachable to a larger range of investors.

Another Challenger!

Besides Fractional NFTs, another inspiring concept peeking from the corners of the NFT industry awaits recognition and acclaim. With this game-changing feature, the future of NFTs is filled with interoperability, efficiency, and sustainability within the space. Let’s welcome ERC-1155!

What is ERC-1155?

Dubbed “the future of ERC-20 and ERC-721, ERC-1155 offers the best of both worlds without compromise! Offering fungibility and unique ownership all at the same time, ERC-1155 opens massive doors for efficiency and simplification of the whole NFT creation, sale, and ownership process and offers investors more ventures to enjoy and own their hard-earned NFTs!

How does ERC-1155 work?

In simpler words, think of ERC-1155 as a bundle deal where you get fungible tokens and non-fungible ones in the same transaction. The process is a little convoluting for the average investor, but it ultimately ends with a concept so revolutionary you’d ask how the industry started without it.

First, a Hybrid Token Standard is created which combines proprietary management and exclusivity of both ERC-20 (Fungible) and ERC-721 (Non-Fungible) in a single smart contract.

To solve convolution in the smart contract and avoid errors in the process of including a Fungible and a Non-Fungible Token in a single smart contract, a unique Token ID is made to represent each item in the system. This means that even if you have the same representative image for all items in the smart contract, the system wouldn’t mistake one for the other, and neither will you!

Ownership is also simplified in this new standard as the contract itself will keep track of the token IDs owned by individual addresses, this creates an immutable system that is fool-proof and is centered towards creating an awesome NFT experience for everyone, be it project launchers or the investors themselves!

ERC-1155 is also flexible, and able to be seamlessly integrated into other standards, which creates an environment of easier exchange and interaction between different tokens within the Ethereum ecosystem!

Ultimately, by integrating both Fungible and Non-Fungible Tokens in a single smart contract, ERC-1155 simplifies token management, reduces potential gas costs (which by the way, could be stupendously expensive in times of network congestions!), and enhances overall time-efficiency in the ecosystem. This is why it’s one of the most sought-for standards in today’s NFT landscape!

Blockchain makes it all the better!

Blockchain technology, as we all knew and loved, is decentralized and immutable. It has been an indispensable ally of the common investor since 2008 and has allowed people to take part in the future of ownership up to this day.

This nature will play a crucial role in the proliferation and expansion of fractional NFTs and ERC-1155 tokens, which badly need all its help because as game-changing as these ideas are, they are still relatively infant in the face of an industry that moves at the speed of thought.

These are the ways that blockchain helps the new age of NFT and ownership expand and develop:

  • Fractional Ownership: What is the role of blockchain technology in Fractional NFTs? It enables fractional ownership by housing the smart contracts that empower NFTs to be tokenized and divided into smaller units, resulting in multiple investors owning a portion of a single asset. This division in turn creates liquidity and accessibility opportunities for high-value projects as this lowers the entry barrier for purchase and ownership of their NFTs.
  • Transparency and Trust: Blockchain ensures that no foul play happens in the fractional ownership side of NFTs. Since all transaction and owner details are collected and recorded on the blockchain, this provides an auditable and immutable history of ownership you can’t find elsewhere. This transparency feature also helps prevent fraudulent activities and unfortunate loss of assets by providing a verifiable ledger of ownership.
  • Liquidity and Trading: Blockchain technology empowers builders and developers to create decentralized marketplaces where these Fractional NFTs can be sold, bought, and traded. Not only does this open opportunity for profit for creators in the space, but this also helps fractional owners find their havens for trading and safekeeping of their precious fractional assets!
  • Interoperability and Standardization of the System: Since ERC-1155 allows for the creation of Non-Fungible and Fungible assets all on the same smart contract, this opens interoperability between different NFTs and tokens, making it easier for fractional NFTs to interact with other decentralized applications (dApps) and smart contracts on the Ethereum network. This standardization streamlines everything that involves NFTs in the crypto space, including the storage, purchase, and even trading of NFTs across various owners, as it promotes the integration of NFTs, fractional or not, into different platforms and ecosystems!
  • Governance and Democracy in the Space: Blockchain enables public governance and decentralization right from the get-go, and this power is transferred altogether into fractional NFTs, allowing every NFT owner, full or partial owner be part of the voting process by allowing them to participate in decentralized governance models in the space and more. With Fractional NFTs giving them most of the powers full-fledged NFT owners have on a certain project, this is an indispensable ability that gives every single investor the power to change the course of their beloved project for the best!

All in all, blockchain technology provides all the necessary infrastructure and helps Fractional NFTs and ERC-1155 tokens to flourish and expand in the ever-changing landscape of the crypto space. With the potential to change the industry for the best, these two ideas that are still in the earliest renditions of their development prove that even against all odds, NFTs are not dead.

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