What is an NFT? Non-fungible Tokens are digital items, such as digital art, MP3, and JPGs. Non-fungible just means that there can only be one of a single item. There is only one Mona Lisa, it is non-fungible. NFTs are typically sold on a Marketplace.
What is a Marketplace? A Marketplace is a website where NFTs are listed and sold.
For example, a piece of digital art might be turned into an NFT, uploaded to a Marketplace where it will be sold using cryptocurrency. The transaction of the sale will be recorded on the blockchain.
What is a virtual currency? As defined by the IRS, “Virtual currency is a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value”. The difference between virtual currency and cryptocurrency in a very simplistic form, is in the fact that virtual currency can be either centralized or decentralized. So, is PayPal a virtual or cryptocurrency? No, it is a platform that utilizes US Dollars. Remember virtual currency is a digital representation of value that can exist only in electronic form.
Can you buy a house in full virtual currency? It has been done and I would imagine it will continue to be done more frequently. However, they are not purchasing these with a conforming mortgage and the downpayment being a true virtual currency. Side note: I just read that Christine Quinn from Selling Sunset has opened a brokerage in California that is doing these transactions: again, not with a conforming mortgage.
If you are anything like me, it has been a very complicated system to understand and digest, and it still is. However, like I said previously, as it is increasingly utilized, the challenges of how to handle this asset when dealing with mortgage transactions has increased, as well. For years, I have been presented with scenarios of how to utilize a borrower’s virtual currency as “source of funds to close.” I had a loan where the gentleman purchased Bitcoin seven years ago. How do we track the value? Did he purchase it recently? What was the initial investment? Oh, he can only convert over a small amount at a time. Thankfully, the GSEs are beginning to release guidance on how to navigate this complex asset and now an emerging income stream.