The world's first non-fungible token (NFT) property was sold — and it's about to shake up the entire world in the same way Uber upended the cab industry.
NFTs are digital doohickeys that many can't wrap their minds around — and with good reason. Blockchain-based memes, tweets, GIFs and artwork are being sold for millions. Why on earth would someone pay so much money for something intangible?
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Even as tech pundits explained that creators use NFTs to certify their masterpieces as authentic and original, the concept of NFTs still flew over people's heads. As such, NFTs were slammed as being "scams" or brushed off as another absurdly indulgent hobby of the rich and famous. However, now that NFTs are shaking up the real estate industry, non-fungible tokens may be more valuable than we thought.
The world's first real estate NFT sale kicks off disruptive precedent
TechCrunch founder Michael Arrington made history in 2017 when he purchased the world's first blockchain-backed apartment on Propy (a tech-forward, real estate platform that seeks to revolutionize home purchasing). Fast forward to 2021 and Arrington auctioned off his NFT-minted, Kiev-based studio apartment for 36 ETH (approximately $93,000 as of this writing).
For the uninitiated, NFTs typically run on the Ethereum blockchain, which stores smart contracts. To keep it short and simple, smart contracts are lines of code that describe a set of rules that need to be met before money can be unlocked and transferred — and you don't need a meddling third-party to facilitate the transaction.
For those who are familiar with real estate, smart contracts might sound awfully similar to putting one's home in escrow (a legal arrangement in which a third party temporarily halts the transfer of money or property until a particular condition is met). As such, the Ethereum blockchain is becoming increasingly attractive as a new, avant-garde avenue for real estate transactions. Instead of hiring an escrow officer, for example, buyers and sellers can simply reply on Ethereum-based smart contracts.
It doesn't stop there. As mentioned, NFTs also certify ownership, which made it easy for Arrington to digitally transfer his property rights to the highest bidder. The sale is then recorded on the Ethereum blockchain. The traditional, current way of transferring property ownership is a pain in the ass — it's pricey and labor intensive. NFTs minimize paperwork.
NFTs could disrupt the lending industry
It gets better! Not only can NFTs aid with "tokenizing" ownership and streamlining contracts, but it can help property owners use their homes as collateral for loans sans the convoluted approval process.
As it stands now, you can already use cryptocurrency to secure a loan. For example, if you have $10,000 worth of Bitcoin (BTC), crypto-lending platform Nexo will loan you half of your collateral value (i.e. $5,000). Crypto lenders won't check your FICO score nor will they put you through a grueling approval process. Why? Because they have access to your BTC if things go awry. As a cherry on top, crypto-backed loans have a quick turnaround time.
In the same way, real estate owners can use their NFT-minted homes to borrow money quickly and efficiently without using banks and the mind-warping process of proving one's creditworthiness.
“Imagine I could buy a house as an NFT, and instantly borrow against the NFT [...] with a 2-4% interest rate. Why would I ever go through the brain damage of using Wells Fargo or Chase with their months of nightmare due diligence?” asked Henry Elder, president of International Blockchain Real Estate Association.
The bright future of NFTs
NFTs aren't taken seriously by many. How could you blame them? An NFT of the infamous Shiba Inu meme — now associated with Dogecoin — recently sold for a whopping $4 million; you can't help but chuckle at the absurdity.
Fortunately, despite the ridiculous million dollar sales of frivolous GIFs and memes, it seems as if NFTs have found their value in the real estate industry. Holding an NFT deed streamlines the process of putting one's home in escrow, transferring ownership rights, securing loans via collateral, refinancing one's mortgage, and more.