What are NFT Marketplaces?

By  Beluga Research July 24, 2023

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Summary

  • An NFT marketplace is a digital space where investors can buy and sell NFTs
  • Marketplaces allow parties to track the value of NFTs over time
  • NFT marketplaces help parties to understand which NFTs are in demand
  • These marketplaces can often be volatile depending on how quickly an individual NFT or set of NFTs will sell

Overview

An NFT marketplace is a digital space where investors can buy and sell NFTs. Investors typically buy and sell NFTs with cryptocurrencies. NFT marketplaces have existed since 2017, but began to become more popular in 2021. In March 2021, a digital piece by an artist called Beeple sold for $69 million at a Christie's auction.

At the time, this was the most expensive NFT ever sold. Since then, NFTs have become increasingly popular, with artists, musicians and other creators using such forums to monetize artistic work. The demand for NFT marketplaces has risen along with the demand for NFTs.

A Brief History

The first popular NFTs on the Ethereum blockchain were created in 2017, with the launch of a platform called CryptoKitties. The CryptoKitties platform allowed users to buy, sell and breed digital cats. Each cat was represented by a unique NFT. The game quickly became popular. Some digital cats sold for thousands of dollars. Since then, creators have developed a wide range of NFTs. These range from art and music NFTs to virtual real estate. The most popular NFT marketplaces include OpenSea, SuperRare and Nifty Gateway.

What are NFT Marketplaces?

NFT marketplaces are online platforms where people can buy, sell and trade NFTs. These platforms are similar to traditional marketplaces like eBay or Amazon. The focus here is on digital assets. NFT marketplaces allow creators to set their own prices for NFTs. As a result, the value of an NFT can vary widely depending on the popularity of the creator, the rarity of the asset and the perceived value of the asset.

NFT marketplaces typically provide avenues for users to track the value of NFTs over time. Many platforms offer tools that allow users to see how much an NFT has sold for on previous occasions. This is useful for buyers and sellers. The openness of information allows parties to make better decisions about pricing and purchasing.

Getting Started

  • Set up a digital wallet. The digital wallet must be compatible with the blockchain on which the NFT is verified. Popular blockchains for NFTs include Ethereum, Binance Smart Chain and Polygon. After a user has set up a digital wallet, they can connect it to the NFT marketplace.
  • Buy and sell NFTs . A user typically acquires an NFT with units of cryptocurrency. A user can view which NFTs are available by browsing through listings. Then they can place a bid on the NFT or purchase it at a set price. Popular NFT marketplaces include OpenSea, Rarible and SuperRare.
  • Engage in an NFT exchange. An NFT exchange is a particular type of platform where users can trade NFTs. Although each NFT is unique, users can exchange NFTs of equal or unequal value so that they can acquire items that they desire. Popular NFT exchanges include Nifty Gateway, among many others.

Unique Aspects

  • NFT marketplaces are geared toward creators and collectors. These platforms provide a way for creators to showcase artistic work. Collectors can browse and purchase NFTs that align with their interests.
  • NFT exchanges are geared more toward traders and investors . These platforms allow individuals to buy and sell NFTs for profit. They provide forums for users to speculate on the value of NFTs. Users can trade NFTs much as they would other digital assets, such as cryptocurrencies. NFT exchanges are unlike NFT marketplaces in that the exchanges do not require creators to list their NFTs for sale. This makes it possible for users to trade even rare NFTs.
  • NFT exchanges allow users to trade fractional ownership of NFTs. Fractional ownership refers to the splitting of an NFT into various pieces. This concept makes it possible for buyers without a great deal of assets to acquire a portion of a high-value NFT. Fractional ownership allows users to diversify their NFT holdings. This is beneficial for each investor who wants to reduce risk. It is also helpful for the cryptocurrency ecosystem as a whole.

Advantages

  • Liquidity. NFT marketplaces and exchanges provide liquidity to the NFT market by allowing people to easily buy, sell and trade NFTs. Liquidity also makes it easier for people to enter and exit the market. Such ease of entry and exit provide a way to stabilize prices.
  • Transparency. NFT marketplaces and exchanges are built on blockchain technology. Since blockchain ledgers showcase the history of transactions regarding digital assets like NFTs, the blockchains provide transparency to the market. Buyers, sellers and other users can understand the entire history of an NFT. This includes an asset's previous owners and sale prices.
  • Accessibility. NFT marketplaces and exchanges are accessible to anyone with an internet connection. People from all over the world can easily buy, sell and trade NFTs.
  • Security. NFT marketplaces and exchanges are built on blockchain technology, which provides security to the market. As a result, NFTs are stored securely. They cannot be easily hacked or stolen. This is particularly important for NFTs as opposed to cryptocurrencies. NFTs are one-of-a-kind. A stolen NFT cannot be replaced with equivalent units like bitcoin or ether.
  • Price discovery. NFT marketplaces and exchanges provide a platform for price discovery. Buyers and sellers can see the current market price of an NFT and make informed decisions about buying or selling.

Disadvantages

  • High fees. NFT marketplaces and exchanges often charge high fees for buying, selling and trading NFTs. The fees eat into an investor's profits. They make it more difficult for small buyers and sellers to participate in a NFT marketplace or NFT exchange.
  • Volatility. NFT prices can be highly volatile. The volatility makes it difficult for buyers and sellers to predict the market. It also leads to large fluctuations in price. Investors may be hesitant to buy or sell. In addition, parties have a harder time determining whether it is a good time to buy or sell.
  • Lack of regulation. NFT marketplaces and exchanges are largely unregulated. This can make them vulnerable to fraud and scams. The lack of regulation makes it difficult for buyers and sellers to resolve disputes.
  • Environmental impact. NFTs are created using blockchain technology. Such platforms require a significant amount of energy. This energy consumption has raised concerns about the environmental impact of NFTs and platforms relating to them.