A non-fungible token (NFT) is a way of selling, and therefore someone owning, a digital asset, such as a video or picture. As these are usually sold exclusively as one-off pieces, they are incredibly rare, which drives prices up. In this article, we examine a new trend: What are F-NFTs?

In some cases, NFTs sell for a lot of money, which naturally makes the headlines. A video on YouTube, ‘Charlie Bit My Finger’, was sold as an NFT for $683,000 recently. Once the video was bought, YouTube took it offline, as it’s the property of the new owner.

Digital artist, Mike Winkelmann, who’s also the creator of “Beeple” created a composite piece of digital art, created from 5,000 daily drawings. This became the most famous NFT, bringing the term to the attention of a mass audience, when it sold for nearly $68 million at Christie’s.

NFTs only started to be bought and sold — usually with cryptocurrency — since 2014. An impressive $168 million has been spent on NFTs since 2017, and that number continues to rise, with more people investing in them everyday. NFTs are set to become the way consumers and collectors pay for digital art, creations, and assets, with the majority of payments for NFTs coming in the form of cryptocurrency.

Not only is this a leap forward for digital creators, and the creators of traditional art (because any form of art can be turned into, or paid for, with an NFT), but it contributes to the ongoing rise of cryptocurrency. Both sectors and ecosystems benefit. And consumers and collectors now have a secure way to buy and sell digital art, making it more valuable.

However, as positive as this creation of value is, it makes most NFTs too expensive for the majority of people. Very few, other than high net worth individuals, have a spare $50 million to spend on a piece of digital art, or anything approaching that kind of value.

Fortunately, there is a solution for this, in the form of fractionalized NFT (F-NFTs), or fractionalized non-fungible tokens. You can now own a piece, a percentage, of a digital asset. In the same way owning shares in a company means you can only claim a tiny percentage of ownership.

And the same is true when you own shares of property through an index. You don’t own a building or two, but you can claim ownership and therefore profit from rental income (yields). Now the same is true when it comes to digital assets, thanks to the existence of F-NFTs. In order to understand this, we will take a quick look at NFTs, and then F-NFTs, including use cases.

What are NFTs?

An NFT is a non-fungible token. Although they are built with the same technology as Bitcoin and Ethereum — blockchain — the similarity stops with that.

Money and cryptocurrency is “fungible”, which means it can be traded. Exchanged for one another, such as the way dollars can be exchanged for yen, euros, or bitcoin. It also means that one dollar will always equal one dollar, even when the value of what you can buy for currency changes over time.

Because cryptocurrency is fungible, it operates in the same way as currency, and therefore makes it a trusted way to exchange value, buy and sell, and invest, on blockchains. Bitcoin and other cryptocurrencies are trusted for that reason.

NFTs are different. Based on the definition, they are not fungible; hence the term, non-fungible token. Every single NFT has a unique digital signature. Which means one NFT is not worth the same as another. Even if they are sold for the same value, each individual NFT is unique.

NFTs operate on the blockchain. Ethereum in particular. Although other blockchains do support them. When an NFT is made, a process known as being “minted”, it’s a unique digital blockchain-based record of a tangible or intangible asset, such as a piece of art, a video, and even a tweet. Twitter Co-founder, Jack Dorsey, sold his first ever tweet as an NFT for over $2.8 million.

An NFT acts as proof of ownership. In the same way that shares prove you own a percentage of a company until you sell them. Then someone else owns those shares. NFTs work in the same way. Now let’s take a look at fractionalized non-fungible tokens. We will take a look at the F-NFT definition, use cases, and how they compare to NFTs.

What are F-NFTs?

On the other hand, fractionalized non-fungible tokens (F-NFTs) are fractions, or percentages, of a complete digital asset. Built on the same principles, with the same technology, while making NFTs more accessible by dividing the ownership potential with a wider group of people.

Decentralized autonomous organizations (DAOs) play an integral role in the management of F-NFTs. Multi-signature DAOs, with multiple users, can manage the governance of F-NFTs (e.g. a pool of digitized intangible assets), thereby only permitting an operation or action when certain criteria has been met within the smart contracts, or a voting threshold is reached, which would trigger smart contract actions.

An F-NFT includes the following components:

Asset authentication

For any tangible or intangible asset to become, or sold as an F-NFT, it needs to be authenticated. It has to be real. Whether a piece of art, pair of sneakers, music, video, or an asteroid. Authentication prevents fraud, and ensures there is true value associated with the price being paid for a percentage (fraction) of the asset being sold.

A fractionalized smart contract

With a smart contract, the creator and/or asset owner can outline the token properties, metadata, the number of tokens that will be created, and price for them, to ensure ownership can be sold/distributed.

Listing an F-NFT

Listings can take place on exchanges, thereby giving transparency to the whole process, and giving people the ability to buy a fractionalized percentage of the digital asset.

How do these compare to NFTs?

One of the major advantages of F-NFTs, compared to NFTs, is liquidity that owners benefit from. Anyone who owns a share of an F-NFTs can buy and sell these on secondary markets, making it easier to earn a profit on what was originally paid.

On-chain exchanges and liquidity protocols, such as the DEIP Network, make price discovery and liquidity easier to achieve. Also, as ownership is through smart contracts, F-NFT can benefit from governance and rights, which can include the monetization of the underlying asset increasing in value.

Why are F-NFTs the next big thing?

Intangible assets can generate revenue. Say through an F-NFT, you and a thousand others own a percentage of a famous picture. A work of art could be worth $10 million. Everyone owns a percentage, with the governance controlled using smart contracts.

That work of art tours 20 art galleries, and each gallery pays a percentage of what customers pay when they view the art, generating ongoing royalties. It then increases in value, which is when enough F-NFT vote using smart contracts to sell the painting, ensuring everyone profits from owning a valuable tangible asset.

One way that asset owners and creators can benefit even more from F-NFTs is when the DEIP Protocol is launched. DEIP is a series of blockchain-based protocols, tools and applications for the creative economy, specifically for those wanting to monetize digital assets through F-NFTs. DEIP is an Intellectual Capital Protocol that will empower the discovery, evaluation, license and exchange of digital assets. It’s designed to enable intangible asset tokenization (F-NFTs), and will include governance (DAO) and liquidity for F-NFT owners using derivatives and DeFi instruments.

For creators and asset owners, F-NFTs make NFTs more accessible, and therefore easier to generate income from owning tangible and intangible assets. We are about to experience the next wave of monetization of digital assets, with more people than ever able to buy them, thanks to F-NFTs.