The NFT frenzy we have witnessed in the last two years has attracted significant interest from various segments. A large market has emerged where digital art, games, sports cards, music, and many other digital contents are sold by tokenization. NFT dapps were among the best-performing apps in the crypto winter we experienced in 2022.
When most people think of NFT, the first thing that comes to mind is assets in the form of a single, static image, video, or multimedia file. However, we cannot ignore the deep interest lately, especially in the "f-NFTs" (Fractionalized NFTs) type of NFTs. There has been an increase in the number of platforms where NFTs can be cut into small pieces of NFTs or purchased f-NFTs. Dynamic NFTs (dNFTs), which are also popular, refer to NFTs' ability to adapt and transform according to external events and data.
Let's take a closer look at these two types of NFTs:
In fractionalized NFTs, the NFT can be sold as separate tokens, divided into multiple, smaller parts. Thus, large numbers of people can acquire rights on parts of NFT. In other words, more than one investor can own a single piece of tokens. Thus, f-NFTs, which allow the NFT to be fractionalized, can create a source of liquidity without having to be sold in its entirety. Fractionalized NFTs are seen as a tool for democratizing and liquidating NFTs because they provide access to more NFTs at affordable prices.
F-NFTs are fractionalized via a programmed smart contract to generate a predetermined number of tokens based on the original, unique, unchangeable NFT. There are some programs that allow NFT holders to fractionalize an asset and sell those parts. Fractionalized NFTs can then be converted back into a whole NFT.
It is possible to tokenize an artwork, collection, or real estate as f-NFT. For example, in Valentines' Day-themed campaign of the Belvedere Museum in Vienna, Gustav Klimt's famous painting named "The Kiss" was divided into 10,000 NFTs and sold for €1,850 each. Buyers could own certain pieces or gift them to another person. The Belvedere Museum sold 2,415 pieces and raised €3.2 million ($4,717,745) in this f-NFT project in 2022. This is one of the most popular f-NFT projects in the art world.
In-game NFTs can sometimes become very expensive due to increased demands. It can be easier for multiple players to use the same assets by sharing the cost. By utilizing fractionalized NFTs, in the so-called "play-to-earn" games, it becomes possible for more than one player to purchase expensive in-game assets communally.
This can be likened to owning shares in a company. For example, depending on the NFT and the platform on which the fractionalized NFT is purchased, the NFT holder may receive various benefits, such as exclusive access and voting rights to the NFT community. When an NFT is fractionalized, it becomes an exchangeable token depending on the value of the main NFT. On some platforms, fractionalized NFT holders can specify a name or symbol for their f-NFT.
In fact, we can say that the next step in the evolution of NFTs has just begun.
Currently, the most common types of NFTs are “static NFTs”. It would not be wrong to say that most of the art and game projects or digital collectibles we experience today are static NFTs. Let us recall that what makes static NFTs “static” is that their metadata —that is, the data that defines the underlying asset of the NFT— is stable after being minted in the blockchain.
NFTs have many use cases, from art to gaming, fashion to securities. Over time, some of these use cases may require updating the metadata for the NFT. Here, dynamic NFTs, unlike static NFTs, are able to adapt to external events and data. Within this framework, NFT can change and evolve in time. These are also referred to as “living NFTs”.
The fact that these updates are possible is due to the fact that changes can be made to the metadata of NFTs. In this concept, automatic changes are coded into the smart contract to instruct when and how the metadata of NFTs should change. The command for when and how the metadata of NFTs change is given by automatic changes coded in the smart contract of NFTs. Thus, when a change occurs that requires the smart contract to be triggered as a result of an oracle or off-chain event, instructions are provided in the smart contract regarding that how to change the metadata of the dynamic NFT. As a result, in dynamic NFTs, some of their metadata can be updated, while the unique identifiers (tokenID) that identify them remain the same. In fact, dynamic NFTs bring flexibility to NFTs.
Famous digital artist Refik Anadol has revealed his d-NFT work called Casa Batllo: Living Architecture, which he created by redesigning the façade of the famous Casa Batllo in Barcelona. This NFT has found buyers for 1 million 380 thousand dollars (21 million TL) in the auction. But beware: it does not necessarily have to be a moving image, in other words, a GIF or video file, for an NFT to be dynamic. Apart from that, it should be noted that dynamic NFTs can also be beneficial in cases where NFTs represent real-world assets, for example, a house. For instance, dynamic NFTs will be a starring character in a significant use case that various information about the real estate subject to the sale needs to be updated periodically.