The staggering growth of Non-Fungible Tokens (NFTs) since mid-2020 has come crashing at the gates of the art world. Some NFT-based artworks have made the news by selling in the tens of millions of dollars. According to nonfungible.com, The Bored Ape Yacht Club, which holds a collection of NFTs, has traded over $75 million dollars in NFTs as of the date of this article. In March 2021, Beeple’s Everydays: The First 5000 Days sold for $69,346,250.

What actually is an NFT and how does it create value?

An NFT is a cryptographic asset, such as an image, a game, a video, or even a twit, which is stored on a decentralized (no central authority involved) blockchain (mostly the Ethereum blockchain). Blockchains are secure and immutable digital ledgers which permanently record transactions of assets, referred to as “tokens”. These tokens cannot be replicated or destroyed. The Ethereum blockchain platform allows for fungible (exchangeable for equal value, such as currency), and non-fungible (unique and not mutually interchangeable) tokens. Hence, NFTs are considered to have intrinsic value. A token generally demonstrates proof of ownership of a virtual asset. Although a digital work can be reproduced infinitely, an NFT creates scarcity by generating a unique digital record of the creator’s “true version” which authenticates ownership of the work.

If you parallel it with the physical world, Van Gogh’s Starry Night can be copied, recreated or photographed endlessly, but the copies do not diminish the value of the original painting, which is currently valued at $100 million dollars. As with tangible art, NFT enthusiasts see them as collectibles, a piece of history even, which can create prestige and be held as any other type of asset in a person’s portfolio and used to increase net worth and/or income.

By the same principles, real estate can be the perfect asset to convert into an NFT. There are two ways that NFTs can change the future of the real estate market:

Buying, selling, and leveraging virtual land on the blockchain marketplace, such as Rarible – the NFTs could appreciate in value over time and, like real property, be improved and mortgaged; or
Minting a real property into an NFT and buying/selling it with a crypto wallet - that is, converting the physical asset into a digital asset (for transactional purposes only) and using blockchain technology (smart contracts) to securely transfer the title to the real property in a faster and more simplified manner.

We cannot yet predict when, or exactly how, the real estate market will embrace and monetize NFTs, but they present new and interesting business opportunities for individuals and organizations involved in real estate investing.

The coupling of real estate and NFTs will undoubtedly introduce novel and compelling legal issues for lawyers and courts to wrestle with, such as questions in the areas of contract interpretation, tax law, succession law, securities law, money-laundering regulations, and copyright. But it may also make real estate investing easier, more efficient, and virtually open to new worlds, pun intended.