Combining the World’s Oldest and Newest Asset Classes: How NFTs Can Disrupt Real Estate
By Hamilton Souther, Randall Johnson and Nathan Windsor, co-founders of LiquidEarth
In May 2021, Michael Arrington, the founder of TechCrunch, listed his Kyiv apartment for sale as a real estate NFT, at a starting bid of $20,000. It was eventually sold at auction for $93,000 and its buyer became the new owner of the property. According to Arrington, this feat was not just a gimmick, but rather a glimpse of what NFTs in real estate could really achieve.
With a market value (active sales and purchases) of over $34 trillion, real estate is not only the world’s largest asset class, it’s also the oldest. There is approximately $325 trillion in real estate across the world, divided into land, commercial, industrial and residential property sub-sectors. NFTs (non-fungible tokens), on the other hand, are the newest and most evolving asset class in the world.
This new asset class started at the forefront of blockchain technology as a way to tokenize and trade art and collectibles. Over the past two years, however, NFTs have made their way into the finance, entertainment, healthcare, global supply chain, and insurance sectors, and have shown transformative potential. Today, the NFT market is valued at over $40 billion and people around the world are willing to pay millions to acquire these digital collectibles.
Global innovators have turned their attention to the real estate sector as the next NFT opportunity. This fusion of the oldest and newest asset classes in the world could very well prove to be the greatest utility for NFTs, and also the next step in the evolution of real estate.
The technology behind non-fungibility
With an ERC-721 standard on the Ethereum network, NFTs are non-divisible and non-fungible assets. This means that unlike fiat or cryptocurrencies, one NFT cannot be exchanged for the other. NFTs can also only have one owner at a time, with this ownership proven by metadata and unique identifiers that cannot be replicated by any other token. This ownership information is made public on the blockchain and is easily verifiable. NFTs are created and managed by smart contracts that support transferability of ownership and unique terms of the contract itself.
The main use of this NFT technology is the tokenization of physical and virtual assets. When tokenized as an NFT, the asset achieves scarcity, and therefore resellability. For example, a song purchased from iTunes cannot be resold, but that same song symbolized as NFT can be resold multiple times. Each time the song is resold, ownership can be transferred, tracked, and verified on the blockchain.
These unique qualities make NFTs a valuable resource for the real estate industry.
NFT in real estate
In its current state, the real estate industry relies heavily on brokers to connect buyers and sellers. The transfer of ownership takes time and requires a lot of paperwork. Moreover, the real estate sector is fragmented and buyers are limited by geographical borders. This increases the difficulty for international property buyers.
However, with the integration of NFTs into real estate, the industry is currently on the verge of significant change. For starters, with real estate NFTs, buyers and sellers around the world can easily connect on the blockchain. Thanks to smart contracts, the ownership transfer process is almost instantaneous and the need for extensive paperwork is eliminated. Real estate NFTs are breaking down geographic boundaries, allowing people to buy properties around the world with relative ease.
For example, Michael Arrington’s apartment in Kyiv, Ukraine was bought by a San Francisco-based engineer. In this sense, buying a property becomes as easy as buying something online. “We believe that more and more real estate, including real estate, will begin to have a digital representation on a blockchain via an NFT,” Arrington said. “A legal framework has now been created so that when the NFT is sold to someone new, the property rights go with it.”
Real estate NFTs allow people to purchase property using their crypto holdings. Additionally, the issued NFT can be used as collateral to obtain loans or staked on DeFi protocols for additional returns. On platforms like Liquid Earth, a loan can be obtained against NFT or cryptocurrency holdings to purchase the property. This protocol implements the first case of lending for real estate NFTs and tokenized assets. LiquidEarth plans to bring over $100 billion to the NFT real estate space.
The tokenization of property as an NFT opens up unexpected and exciting new dimensions in real estate. It brings everyone in the real estate industry together in one platform, where they can connect and transact with ease like never before.
Largest single use case for NFTs
Although initially seen as a passing fad, NFTs have rallied around all speculation and established themselves as a viable asset class. While NFTs have significant use cases in the arts, finance, and entertainment industries, their integration with real estate is what ultimately represents the biggest real-world use case. This integration brings much-needed credibility to NFTs as an asset class. Older and newer asset classes can come together to create a plethora of new opportunities.
About the Author:
By Hamilton Souther, Randall Johnson and Nathan Windsor: co-founders of LiquidEarth, a real estate NFT ecosystem that allows users to buy, sell and leverage real estate NFTs. Souther is a visionary, macro innovator and pioneer in the field of plant medicine. Johnson is a 35-year-old American securities attorney and blockchain innovator. Windsor is a blockchain specialist and an early investor in BTC and ETH.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.