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 auctioned for $93,000, and its buyer became the new owner of the property. According to Arrington, this feat wasn’t a mere gimmick, but rather a sliver of what NFTs in real estate could truly 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 is also the oldest. There is an estimated $325 trillion worth of real estate across the globe, divided into sub-sectors of land, commercial, industrial and residential properties. NFTs (non-fungible tokens), on the other hand, are the world’s newest and most rapidly evolving asset class.
This new asset class started out on the cutting edge of blockchain technology as a way to tokenize and trade art and collectibles. In the past couple of years, however, NFTs have made their way into finance, entertainment, healthcare, the global supply chain and the insurance sectors, and shown transformative potential. Today, the market for NFTs is valued over $40 billion, and people across the globe are willing to pay millions to acquire these digital collectibles.
Global innovators have turned their attention to the real estate industry as the next NFT opportunity. This merger of the world’s oldest and newest asset classes could very well prove to be the single biggest utility for NFTs, and also the next step in the evolution of real estate.
The Technology Behind the Non-Fungibility
With an ERC-721 standard on the Ethereum network, NFTs are non-divisible, non-fungible assets. This means that, unlike fiat or cryptocurrencies, one NFT cannot be exchanged for the other. NFTs can also have only one owner at a time, with this ownership being proven by metadata and unique IDs that cannot be replicated by any other tokens. This information of ownership is made public on the blockchain and is easily verifiable. NFTs are minted and managed by smart contracts that take care of ownership transferability and the unique terms of the contract itself.
The main use for this NFT technology is the tokenization of physical and virtual assets. When tokenized as an NFT, the asset attains rarity, and therefore resale ability. For instance, a song purchased on iTunes cannot be resold, but that same song tokenized as an NFT can be resold multiple times. Each time the song is resold, the ownership can be transferred, tracked, and verified on the blockchain.
These unique qualities make NFTs a valuable resource for the real estate industry.
NFTs in Real Estate
In its current state, the real estate industry is heavily dependent on brokers who connect buyers and sellers. The transfer of property ownership is time-consuming requiring extensive paperwork. Moreover, the real estate industry is fragmented, and buyers are limited by geographical boundaries. This increases the difficulty for international property purchasers.
However, with the integration of NFTs into real estate, the industry is currently poised to undergo significant changes. For starters, with real estate NFTs, buyers and sellers from across the globe can easily connect on the blockchain. Thanks to smart contracts, the process of ownership transfer is almost instantaneous, and the need for extensive paperwork is eliminated. Real estate NFTs do away with geographical boundaries, allowing people to buy properties across the globe with relative ease.
For instance, Michael Arrington's apartment in Kyiv, Ukraine was bought by an engineer based in San Francisco. In this sense, buying property becomes as easy as buying something online. “We believe more and more real property, 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 such that when the NFT is sold to someone new, rights to the real property 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 yields. On platforms like Liquid Earth, a loan can be obtained against the NFT or cryptocurrency holdings to buy the property. This protocol implements the first case of loans for real estate NFTs and tokenized property. LiquidEarth plans to bring in over $100 billion to the real estate NFT space.
Tokenizing property as NFTs opens up new, unexpected and exciting dimensions in real estate. It brings all the players of the real estate industry together onto one platform, where they can connect and transact with ease like never before.
The Single Biggest Use-Case for NFTs
Although they were initially considered a passing fad, NFTs rallied against all speculations and established themselves as a viable asset class. While NFTs have significant use cases in the art, finance and entertainment industries, their integration with real estate is what ultimately represents the single biggest real-world use case. This integration brings much-needed credibility to NFTs as an asset class. The oldest and newest asset classes can unite creating a plethora of new opportunities.
About the author:
By Hamilton Souther, Randall Johnson and Nathan Windsor: Co-Founders of LiquidEarth, an NFT real estate ecosystem that allows users to buy, sell, and leverage real estate NFTs. Souther is a visionary, macro-economic innovator, and pioneer in the Plant Medicine space. Johnson is a 35 year US securities attorney and blockchain innovator. Windsor is a blockchain specialist and 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.