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What Is the NFT Marketplace?

By Elizabeth Blessing on June 24, 2022

Reading Time: 5 minutes

According to some, we’re in the middle of the “Wild West” phase of the NFT marketplace. The meteoric rise in non-fungible tokens(NFTs) has led to astronomical valuations, wild price swings, and huge public interest.

In just a few short years, we’ve seen scandals, outright fraud, and billions of dollars made (and lost) thanks to NFTs. Today, the news headlines scream about NFT danger. But that may quickly change as the technology evolves and finds its way.

Key Takeaways

Non-fungible tokens (NFTs) digitally represent tangible and intangible assets.

What opportunities do NFTs offer?

Which NFT marketplace platforms are the most appealing?


Why is the NFT marketplace relevant?

Remember the dot-com bubble of the late 1990s and crash of 2000? This financial catastrophe paved the way for the thriving and profitable Internet we know and use today. Similarly, the current NFT chaos may soon give way to a fair and affordable online marketplace accessible to all.

Understanding non-fungible tokens (NFTs)

To understand the NFT marketplace, you will first need to understand non-fungible tokens (NFTs). An NFT is a digital representation of a tangible or intangible asset. These assets can be all sorts of items—including assets that exist in the physical world and those that exist only online.

NFTs can digitally represent art, music, poetry, GIFs, avatars, video clips, domain names, real estate, online gaming items, access to live events, and more. This list is expected to grow as more uses for the technology develops.

Digital artwork is one of the most common types of NFTs. For example, the Bored Ape Yacht Club is an assemblage of 10,000 profile pictures of… well, bored apes. These quirky pics show disinterested cartoon apes, many sporting themed outfits. Some of them have sold for hundreds of thousands of dollars.

Even historic social media messages play a part in the NFT marketplace. Twitter cofounder Jack Dorsey sold his first tweet as an NFT. The tweet (sent on March 21, 2006) simply said “just setting up my twttr.” In a 2021 bidding war between tech entrepreneurs, Dorsey sold the digital ownership of his now-famous tweet for over $2.9 million.

How do you create an NFT?

Creators make (i.e., “mint”) NFTs using blockchain technology. They encrypt and authenticate each NFT with unique meta data and identification codes. The creator can embed lines of code called a “smart contract” that automatically executes when certain conditions are met.

For example, a creator of an art NFT can stipulate that they earn a royalty each time their NFT is resold in the marketplace. It’s this built-in uniqueness that makes NFTs “non-fungible.”

When something is non-fungible, this means that it is one-of-a-kind and cannot be replicated. Because each NFT has a distinct digital signature, one NFT is not equal to another. Thus, you cannot exchange one NFT for another.

This contrasts with physical money and cryptocurrencies, which are “fungible.” For example, one U.S. dollar is always equal to another U.S. dollar. The same is true with cryptocurrencies. One Ethereum is always worth another Ethereum. One Bitcoin is always worth another Bitcoin.

You can exchange cryptos and physical money at equivalency. This makes them suitable as a medium for commercial transactions. NFTs, on the other hand, do not function as money. Instead, they function as certificates of ownership for a tangible or intangible asset. They exist on blockchains and can be created, bought, and sold in the NFT marketplace.

How the NFT marketplace works

An NFT marketplace is a decentralized online platform where you can store, buy, and sell NFTs. Some marketplaces also allow creators to mint NFTs. To use a specific marketplace, you will need to sign up for an account.

Most NFT marketplaces make their money by charging users fees for creating, storing, and listing NFTs on their platform. You may need to pay a “gas” fee. This compensates the platform for the energy used to complete the transaction on the Ethereum blockchain.

For most marketplaces, you will need a crypto wallet that works with the blockchain network supporting the NFTs you want to trade. You will use your wallet to store the private keys (passwords) that allow you to access, send, receive, and spend your cryptocurrency.

Before trading on the NFT marketplace, you will need to fund your wallet with the cryptocurrency applicable to that marketplace. Once you do so, you will be able to conduct transactions on the platform.

What are the types of NFT marketplaces?

In just the last few years, many new NFT marketplaces have opened for business. This gives the NFT creator and trader a lot of options. Some platforms cater to a specific niche, such as digital art or music. You can find marketplaces that specialize in various types of sports collectibles, virtual real estate, and gaming assets.

The virtual NFT marketplace

Here we list a few popular marketplaces:

  • OpenSea: This is the first and biggest NFT marketplace. OpenSea claims to have “everything for everyone.” They offer a huge assortment of NFTs and a platform that caters to newbies.
  • Nifty Gateway: This large marketplace offers art and collectible NFTs. Nifty Gateway is a custodial platform, storing NFTs in a secured wallet. This enables collectors to use the platform without incurring gas fees.
  • Mintable: Mintable’s NFT categories include art, music, videos, collectibles, sports, and utility. Backed by billionaire Mark Cuban, this Ethereum-based platform offers creators tools to mint NFTs, create a store, and promote their collections.
  • Magic Eden: This is the leading NFT marketplace on Solana blockchain. The platform is popular in the gaming vertical. Magic Eden made “unicorn” status when it raised $130 million on a valuation of $1.6 billion. The startup plans to use the funding to expand to other blockchains.
  • SuperRare: Serious art lovers find a home at this marketplace. The platform focuses on NFTs from the world’s best artists. The NFTs on SuperRare use smart contracts to ensure creators earn ongoing royalties from secondary sales of their work.

The NFT marketplace opportunity

There is no doubt the NFT marketplace is volatile and going through a period of consolidation. Critics of the tokens scoff at the high valuations. They seem to think NFTs are a fringe fad that will soon disappear. What they might be missing, however, is the difference between the collectible aspect of NFTs and the utility aspect.

Many celebrities and entrepreneurs have come out in favor of the decentralized technology fueling the newest phase of the Internet, called Web 3. Mark Cuban, Gary Vaynerchuk, Kevin O’Leary, Tom Brady, and Snoop Dogg all see the long-term value in the technology driving NFTs.

And they are not alone. Forbes reports big brands are staking huge sums to be at the forefront of the Web 3 evolution. They see it as an opportunity to use the innovative technology to build community with their customers.

Adidas, Nike, Coca-Cola, McDonald’s, Louis Vuitton, and Gucci have all launched NFTs to engage customers, build brand loyalty, and open new revenue streams. Even the Royal Mint plans to launch an NFT for Britain as part of its goal to make the UK a world hub for crypto investment.

Conclusion

It is this potential for more direct consumer engagement that will propel companies to continue to experiment with tokens. NFT enthusiasts believe society is on the cusp of a new paradigm that makes decentralized blockchain technology universally available to all. If they are right, the need for Internet “middlemen” (such as Facebook and Google) may decline significantly as people opt to interact and conduct business through NFT smart contracts instead.

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Elizabeth Blessing

Elizabeth has been writing about personal finance and investments since 2014. She is a writer and editor for the financial information website, Investopedia. Elizabeth has written about growth investing and income stocks for the award-winning newsletter, "The Complete Investor." She covered high-yield stocks for the newsletters "Leeb Income Millionaire" and "Leeb Income Performance." Her monthly spotlight columns covered a number of investing trends and strategies, including gold investing, dividend stocks, exchange traded funds (ETFs), real estate investment trusts (REITs), mergers and acquisitions, and the latest in investor education. She’s written for many online investment publications, including Investing Daily, Wealthtender, Weiss Research, and Eagle Financial.

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Elizabeth Blessing

Elizabeth has been writing about personal finance and investments since 2014. She is a writer and editor for the financial information website, Investopedia. Elizabeth has written about growth investing and income stocks for the award-winning newsletter, "The Complete Investor." She covered high-yield stocks for the newsletters "Leeb Income Millionaire" and "Leeb Income Performance." Her monthly spotlight columns covered a number of investing trends and strategies, including gold investing, dividend stocks, exchange traded funds (ETFs), real estate investment trusts (REITs), mergers and acquisitions, and the latest in investor education. She’s written for many online investment publications, including Investing Daily, Wealthtender, Weiss Research, and Eagle Financial.

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