In March 2021 Twitter founder Jack Dorsey sold his very first Tweet as an NFT for $2.9 million. Around the same time the Land Registry ran a series of pilots to explore the possibility of using blockchain technology, such as NFTs, to provide some much needed modernisation and efficiency to the property buying process. The growth of NFTs has been substantial in the last few years, even including the purchase of digital land, but could it really provide the answer for traditional property transactions? What are the opportunities presented by NFTs for tangible real estate transactions?
NFTs a simple introduction In short, NFTs or ‘Non-Fungible Tokens’ are a digital token which can be used to identify a unique item, either in the real world or the digital world.
NFTs are digital assets containing “identifying information”; i.e. the information which makes a particular NFT unique and distinct. NFT’s cannot be swapped like-for-like or switched in the way that bank notes or Bitcoin are (hence “Non-Fungible Tokens”). Each NFT token is one of a kind and cannot be interchanged, replicated or duplicated.
NFT’s are issued on a blockchain, similar to a crypto currency. A blockchain allows the transaction history to be clearly recorded and in a format that cannot be edited or corrupted. NFT’s can be used for digital assets that need to be differentiated from each other in order to prove their value or rarity and it is this recognition of its unique value that has borne witness to an explosion in NFT investment in the world of Sport, Art, Music and Digital Art.
NFTs meets Real Estate Combining a traditionally ‘slow to change’ area such as Real Estate with a rapidly moving trend such as NFTs might initially seem juxtaposed. However, NFTs and real estate transactions share more characteristics than many would think and are a potentially well-suited match. In fact, a 2021 Forbes article suggested that real estate is ‘the perfect asset to convert into a ‘Non-Fungible Token’.
Real estate transactions are already complex, combining the physical asset, the title documentation and the contractual documentation that formalise the deal. In addition to surveying the physical asset and carrying our in-depth due diligence on the legal documents, each transaction requires high level identification and anti-money laundering checks as real estate remains highly susceptible to fraud. For more historic buildings the deeds are often fragile, delicate and sometimes illegible.
Whilst NFTs may sound complex, they do have the potential to simplify traditional conveyancing processes. NFTs have the capacity to hold huge amounts of information and data, providing built-in authentication and proof of ownership which is all recorded and secured on the blockchain. As we are repeatedly told, forgeries do not exist in the realm of NFTs! Therefore NFTs can be a useful tool to streamline each real estate transaction, allowing us to certify ownership digitally. The Land Registry often verifies the identity of land owners through individuals sending in certified copies of their ID via their conveyancer’s certification; there are too many parties involved here and the opportunity for fraud is evident. NFT’s provide the accuracy of digital confirmation as they are unique to each individual owner like a digital passport of sorts, they cannot be duplicated in the way that hard copies can, hence decreasing the risk of identity fraud.
Possibilities vs Realities In addition to streamlining the transaction, NFTs have the potential to expand the property investment. For example, Fine & Country have brought to market a substantial property known as Hampton Hall, a £29 million luxury mansion in Surrey, where in addition to the sale of the physical property the developer has also offered the buyer rights of first refusal on an NFT containing the copyrighted blueprint and a virtual version of the mansion. This option to expand your investment may well become more common, but will undoubtedly require developers and agents alike to focus on marketing the NFTs to buyers who may not be well-versed in their benefits.
In 2019 the Land Registry piloted its first block chain transaction by running a previously completed sale through their block chain prototype. Through the assistance of digital identify provider Yoti, Buyer and Seller identities were confirmed via mobile interface. Once each action had completed the application automatically informed the next party it was their turn to act. The demonstration of the technology ran through the transaction end to end in less than 10 minutes! This provided the proof of the streamlining ability and speed that blockchain technology can provide. The potential is clearly there, but in a field that has been slow to accept change, is this potential likely to be realised?
At present the use of NFT’s as a legitimate method of completing a real estate transaction has a long way to go, with NFT’s seen as a novelty ‘add-on’ for some purchasers. To achieve the full potential presented by NFT’s, work must be done to ensure that they are not just widely known, but also widely understood. Furthermore, integrating NFT’s into the real estate legal framework will require extensive regulation and time to ensure that the potential is matched by the market’s confidence. However, with the Land Registry’s mandate to become the world’s leading land registrar, it seems inevitable that blockchain technology will have a vital role to play in the future of real estate transactions.
The modern client demands transactions that are both efficient and secure. Whilst there may be work to do to sell the concept, the answer to this demand is presented by the unique world of NFT’s and blockchain technology.