Blockchain and digital currencies are disrupting the world as we know. This has caught the attention of many entrepreneurs that are seeking to exploit this opportunity. Cryptocurrency projects pop up every day as more and more people understand their innovative applications. Many compare blockchain technology with internet in mid-90s stating that whoever fails to understand its capabilities will be left behind (Frey, 2021).
An innovation that is based on blockchain and digital currencies is NFTs. Lately there is a big fuse around NFTs and their application since $174 million have been invested in NFT purchases (Conti, 2021). To give a high-level description, NFTs are digital non-fungible tokens that are part of Ethereum blockchain. The term non-fungible basically means that each token is unique and recognizable. For example, a coin is fungible whereas a one-of-a-kind card from a rare collection is non-fungible.
NFTs as of now are basically used to secure ownership of digital assets, which as we know can be replicated easily. Mostly they are used to sell digital art such as music, all kinds of digital artwork and items in gaming industry. In order to prove authenticity digital work is assigned with a number which is stored in a token as part of the blockchain. The token as part of the consensus that blockchain offers, proves the authenticity and the ownership of the asset and it can be passed or sold. To better understand the size of the market you can observe the accumulated sales during the month of February in the image below.
But NFT’s applications are not restricted only to the digital world. They can be connected to represent ownership to physical items too. An appropriate industry that could use NFT capabilities is real estate. Apartment owners could issue NFTs, which represent fractions of their property and then sell them to investors. By this, fractional ownership is achieved, and investors can gain income from rent or potential sale. Investors can also use their unique tokens to exchange fractional ownership in markets without the need of intermediaries. But when dealing with innovative technology there are some potential risks that should be considered. Even though NFTs can provide some additional fund flows in real estate they create problems regarding the ownership of the property. If someone has enough proportion of a property can, he actual have the final say and force the previous homeowner to sell it? This could be very stressful and unacceptable for those living in the property. In contrast if investors have acquired the property could occupants continue to live there indefinitely?
As we understand NFT in real estate business must work with different legal and practical issues before it is mass adopted by the industry. Although full adoption seems to be far away we should be vigilant and take advantage all the opportunities this new technology haw to offer.
References
https://www.forbes.com/advisor/investing/nft-non-fungible-token
https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq
Hi Panagiotis,
It was interesting to read your post. I have heard of NFTs myself and understand the basics. However, I had not thought of the innovative real estate application it could have. It sounds like it would serve as a method of distributing ownership of a property. How would this work in practice though? Would the ownership of the real estate NFT be anonymous? Would owners of real estate NFTs be able to resell their NFTs, or would they only be able to sell it back to the owner of the property (i.e. the issuer of the NFT)?
I did read about the fact that the luxury fashion industry is poised to enter the NFT market (if they haven’t already). Apparently, brands such as Chanel and Dior are working on selling NFTs of shoes, clothing, etc. To me, this idea is still a bit strange. The whole point of buying fashion or art, is usually to wear or display it. But of course you cannot wear a NFT. In general, is the idea that the NFT will be displayed on some sort of screen? Or will it serve more as an investment (i.e. something to buy and sell to make money)? Or is it just something “cool” to own?