Today the NFT craze is synonymous with rare digital art and other digital “collectibles”. But unlike traditional works of art, people are spending millions of dollars on a fractional auction for collectibles ranging from sports trading cards, gifs, to video games, and music.
Recently, digital artist Beeple made a record-breaking NFT sale of his JPG artwork called “EVERYDAYS: The First 5000 Days,” which was sold for $69 million.
This year, the demand for NFTs surged for about 20 times more in the first quarter alone, accounting for more than $2 billion in total sales, according to a report from NonFungible.com, a website that monitors NFT transactions and marketplaces. In the NFT art segment, there has been an increase of about 90 percent in total sales as of June 2021, mainly from the primary market, this is according to a report from Statistica.com.
Despite the success of NFT, its value in digital arts today simply certifies the buyer as the rightful owner of the underlying asset. In reality, these “collectibles” can still be replicated or shared. But what's interesting about this technology is that its real use case goes beyond these digital collectibles; its wide scope enables to tokenize complex real-world assets.
In the property market, NFTs can move property buying in a non-physical way through its governing ecosystem, the blockchain. To understand how NFT can disrupt the real estate market, let's take a closer look at how it works with blockchain.
Non-fungible token (or NFT) is a new type of digital asset that can be bought or sold. Unlike bitcoin, NFTs cannot be subdivided and used as a means of exchange. Technically, its characteristics have the ability to store information which is critical to fully move real estate buying in a non-physical way.
In economics, when we say fungible asset it accounts as a unit of a product that can be readily interchanged, for instance, money. With money, it's intrinsically used as a means of exchange with exactly the value of the product to be purchased, regardless of whether that will be in the form of a single paper bill, coins, or a mix of both.
But if we say we are dealing with non-fungible assets, it means it's irreplaceable because of its unique properties. For instance, houses, jewelry, paintings which are one of a kind. Typically, non-fungible assets are more valuable and have far more complex transaction processes than fungible assets. For instance, when buying properties, we need to separately deal with property deeds and other legal work.
This is why NFT is a good fit for the real estate market. With tokenized property, these deeds can be represented onto the blockchain which means the buyer can easily access and settle its legal work without having to go through intermediaries. This is possible as NFTs are crypto assets that are primarily ethereum-powered which benefit from blockchain-based data integrity and security.
Real estate is the largest asset class in the world. Yet, it still represents one of the most illiquid asset classes mainly due to high entry barriers.
With blockchain technology, real estate tokenization to NFTs can be utilized to bring real estate investment to regular investors. By tokenizing properties, its value can be divided into shares that can be sold at a fraction of the cost. This means NFTs can facilitate partial or fractional ownership of assets, which is similar to what we see with the sale of most NFT digital arts.
It also provides an opportunity to expand real estate investment through token accessibility to a broader base of investors which can be traded on various crypto exchanges. To put it simply, we can say that NFTs can help build an Airbnb-like platform in the future, but for fractional real estate investment.
To understand how NFTs can move the real estate market, it's important to first grasp the concept of blockchain technology. Essentially, what blockchain does is it enables digital transactions to take place without any intermediaries like the banks, legal entities, etc. This is possible with so-called “miners'' or programmed computers that are designed to certify blockchain transactions.
For transactions to take place within the blockchain, suppose between “X” and “Y”, both entities need to be represented in the blockchain as “tokens”. Let's say “X” is the property, it's represented in the blockchain by a unique token that is affixed to an underlying asset with its identifying information. While “Y” on the other hand, represents the buyer with cryptocurrency as a means of exchange.
When a property is tokenized as an NFT, it will be digitally represented on the blockchain with its corresponding shares, property rights, and other terms and conditions written in a smart contract, a self-executing contract where the buyer and the seller agreement lies.
This means when an investor buys a tokenized property their legal purchase transactions could entirely take place digitally through an NFT marketplace like Refinable.
In NFT marketplaces, investors, either local or foreign could easily participate in an auction where the medium of exchange is cryptocurrency. Once the buyer successfully makes the purchase the following process is as simple as filling out the KYC and the property seller signing, acknowledging the owner transfership. Thereafter, the buyer will be instantly certified as the new owner of the property.
When it comes to NFT adoption to real estate, it's still very much in development. At this stage, much of the available technology is in property tokenization in general.
A real estate blockchain start-up called LABS Group is one of the first to bring NFT to the real estate market by allowing anyone to buy, sell, and trade fractional ownership in real estate shares. The company is doing this by working directly with property owners and leading blockchain companies, like Enjin, Polygon(Matic)Network and KardiaChain.
One of its latest projects is tokenizing Gravity Resort, the world’s first hospitality-related NFT property fund. This project is set to be available for auction in July 2021 via Refinable.