NFTs, The Death of Mortgages

Most of us have had the experience of using mortgages to acquire property. In this process a bank creates digital fiat currency and passes it on to you via collateralisation of the property being purchased. The borrower then enters into an agreement with the bank to pay the loan principal and interest until the ‘Death of the Engagement’ or, in French, the ‘Mortgage’. This concept has existed in England since at least  the 1650’s. 

Background on titles of property and the need for tokenization  

Currently, the world’s premier currencies are experiencing stupefying amounts of monetary inflation that  has not been seen since the 1970’s when the effect was known as ‘stagflation’. This is resulting in  unprecedented increase in retail prices across the board from consumer goods to energy and to  construction materials. The current feeding frenzy is being fuelled by large cash holders such as the  American BlackRock investment management corporation who are using their cash to purchase whole  swaths of housing divisions.  

Source: TPX 

This is a proportional and direct response to the long and protracted years of inflation that we can  anticipate that have been caused by historic money printing and accelerated in recent years with the  stimulus payments created by global government response to the COVID-19 pandemic. BlackRock is using  property as an inflation hedge against the loss of the purchasing value of the US Dollar. Housing pricing and  sales have skyrocketed to meet the demand of the old aphorism “The safest place to put your money is in  the ground” during times of turmoil. Since most people don’t have the resources of a BlackRock, they are  turning to something better, “little pieces of property”. These tiny pieces of property are known as ‘NFTs’  or ‘Non Fungible Tokens’.

As Plato observed: “Most people are not just comfortable in their ignorance, but hostile to anyone who  points it out.” This can be said of current understanding of NFTs and what they are. NFTs are simply  transparent claims of title against property, both tangible (e.g., real estate, automobiles, art)  and intangible (e.g., electronic art, brands, goodwill).  

Source: TPX 

For example, a single home can have a million titles, each representing a small portion of the home. Each  title certificate is unique with its own individual serial number. These titles can be safely and individually  exchanged in digital exchanges and digital wallets in great volumes, and instantly. Obviously, this is not  practicable or secure if using paper titles as the units of exchange. The advent of blockchain, distributed  ledgers and automated market makers has now allowed the exchange of titles instantly, with 100 percent  surety on their authenticity at all times. Now, in order to exchange £50,000 of a £1,000,000 property, it can  be done in a few thousands of a second, anywhere around the world with just a mobile device. In the  previous legacy banking, property and legal systems, it would have taken a few months. 

NFTs are claims of discrete title against the ownership of tangible and intangible property. They are distinct  titles in their own rights and cannot be divided. They are, however, fusible into large collections of unique  titles to represent varying degrees of ownership of the title of a property. One thing they are definitely not  is financial instruments. A common mistake by the mis-informed or the complacent is to conflate units of  account e.g., USD, GBP, EUR, BTC, ETH with titles of property. These are mutually exclusive and have  nothing in common with each other from a regulatory or legal perspective. 

NFTs enable the extinguishment of mortgages  

Since a single property now can be paired with an almost seemingly infinite number of titles, the need to  hypothecate the entire property is no longer necessary in order to have use of, or occupier status over, a  property. Current existing mortgages can therefore be extinguished merely by selling off the un-required portion of the titles. Homeowners with the minimum requisite amount of ‘titles’ to confer a controlling  level of ownership of the property can now go ‘mortgage free’ with no requirement to pay for the balance.  ‘Half price’ houses are now also possible and housing for young families can now become a tangible reality  for many of those who have been historically excluded from the asset class. 

Conclusion  NFTs enable partial purchasing of property equity and the attendant rights. Rights previously bundled such  as boundary, air, view, mineral, water rights can be parcelled off as individual rights and traded as  individual titles and used in daily commerce. This allows the most attractive rights to some users to be acquired individually without the need to acquire all the property rights. NFTs open up a new world for rights not previously seen.

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