Owning digital art, not to mention real estate, can be hard to comprehend, but investors are sensing a trend that is here to stay with more and more people wanting to see for themselves what it is all about.
A non-fungible token (NFT) is a type of crypto asset that can exist purely in the virtual world and uses blockchain technology similar to cryptocurrencies. In addition to the virtual asset itself, NFTs provide a certificate of authenticity that can extend to collectibles from real estate, to art, music or video games. Unlike cryptocurrency, however, which can be seen as their “fungible” counterparts, NFTs are not interchangeable and cannot be exchanged for another one. Each one is unique. This scarcity and uniqueness properties that NFTs have extends to their use in trading both high-priced artwork and collectible pieces.
Just in the last few months, NFTs have been making headlines, after Chris Torres, the artist behind Nyan Cat, sold a special edition GIF as an NFT that sold for 300 Ether or US $590,000 at the time. This is far from the only example with the crypto market currently valued at over US $100 million.
While the market is exploding in popularity in 2021, (this graphic by Reuters, is a great visualization of the recent spike in NFT sales) and NFTs are making headlines around the world, participants should be wary of scams, especially due to the anonymity offered in these virtual spaces. The novelty of the market is attracting new buyers, but cryptocurrencies are still not widely understood by the public, which means their long term use is still under development.
Back in April, Shane Dulgeroff, a real estate broker based in California, sought to capitalize on the NFT hype, by auctioning a psychedelic video of a house as an NFT which would include the actual house. The property had been bought by Dulgeroff the year prior for $746,000. After two weeks and not a single bid, the auction closed unceremoniously – a stark difference to the $500,000 sale of an NFT house, on Metaverse, a virtual world where plots can be purchased and traded.
At the same time, the virtual real estate arena is becoming a main point of interest for investors and everyday people interested in purchasing virtual land. Online marketplaces such as Decentreland, Cryptovoxels, Somnium Space and The Sandbox, have seen an increase in sales with prices for virtual plots of land reaching as much as $500 thousand. In March alone, Decentreland registered $4 million in sales from 334 buyers, with the numbers constantly rising.
Only time can tell how these virtual real estate places will create investment opportunities or become hangout places for the new generation. One promising development is virtual festivals, drawing on the popularity of games such as Fortnite, with many virtual land investors selling their properties to companies that will host such events.