Now valued in the tens of billions, the NFT space is one of the hottest industries right now. It’s also one of the most misunderstood. For those unfamiliar with NFTs, talk of Bored Apes, drops, floor prices, and Axies may sound a little bit daunting. But, with increased celebrity involvement and more users getting involved all the time, the learning curve doesn’t seem to be putting people off.
One of the first speedbumps in getting involved in NFTs is learning how to buy and sell tokens. Answering how does an NFT marketplace work not only enables you to buy non-fungibles so you can start collecting these valuable, scarce assets but also flip them for profit should you wish to. You may even want to use these marketplaces to create your very own NFT created from your own artwork.
Whatever your reasons, getting to grips with NFT marketplaces like OpenSea opens up a world of possibilities. Below we’ll explore how they work and how you can get involved.
While NFTs are part of the crypto space, you aren’t typically able to purchase them on centralized or even decentralized crypto exchanges such as Coinbase or Kraken.
Instead, you need to visit dedicated NFT marketplaces which specialize in the trading of non-fungible tokens. These websites facilitate the whole process and have made trading NFTs almost as easy as regular online shopping.
You will still need a crypto wallet, however, which will hold your funds and NFTs. There are a lot of different crypto wallets on offer, but with Ethereum being the most popular network for NFTs, MetaMask (https://metamask.io/) is a great place to start. For other networks, like Solana, there are other wallets such as Phantom (https://phantom.app/).
As to be expected, you will also need to sign up for an account with your marketplace of choice. With a funded crypto wallet linked to an account, you can treat NFT marketplaces as you would any other e-commerce site. Simply browse what’s for sale, make offers, buy outright, or even sell what you own.
Blockchains are distributed networks of computers that run code. In the case of networks like Bitcoin, the code establishes a cryptocurrency that can be used as a medium of exchange or store of value. For other networks, like Ethereum, Solana, Cardano, and Binance Smart Chain, the blockchain is capable of running smart contracts.
Smart contracts enable the creation of NFTs as the data within keeps track of who owns what.
An important concept to understand is interoperability. Blockchains such as Ethereum have several different types of tokens on the network. These are called ERC-20 tokens and include stablecoins like USDC and USDT. While some networks such as those by Dapper Labs’ Flow network aren’t interoperable, a lot are, meaning you can use currencies other than ETH to purchase NFTs.
How does an NFT Marketplace Work?
The marketplaces are relatively simple to get to grips with:
Each NFT marketplace will have its own signup process that will be slightly different. Nevertheless, the main process involves the following:
- Located the signup button: this may be worded differently and even simply say “Connect wallet.” In these cases your crypto wallet will be used as your account, streamlining the process.
- Connect your wallet: this will involve giving the website permission to access your wallet. Don’t worry. This is entirely safe but remember to always keep your wallet seed phrase and password private.
- Fund your wallet: Whether it’s buying, selling, or trading, you’re going to need funds in your wallet. This is because using a blockchain network involves processing power and energy consumption. Fees, or “gas”, act as a way to compensate those who are running the network.
Buying NFTs is a relatively simple affair. If you know exactly what NFT you’re after, search for the collection and locate your NFT. You will then be able to do one of two things, should the NFT be for sale:
- “Buy”: just like websites such as Amazon, you can just purchase the item outright for the set price.
- “Make an Offer”: if an NFT has this listed it means, just like eBay, the owner is open to offers. This can either mean the seller is willing to negotiate or, they don’t really want to sell but would be willing to consider it should the offer price be high enough.
Selling is a little more involved. If you have an NFT in your crypto wallet, then do the following (these instructions are for OpenSea, but the process will be similar for all NFT marketplaces):
- Locate “Profile” in the menu bar
- Locate the NFT in your collection that you would like to sell.
- Select “Sell” on the listing page.
- Choose your price and sale format. This can either be a fixed price or an auction format.
- Select how long you want your NFT to be on sale for
- If you are listing the NFT for a specific buyer to purchase, enter their wallet address in the “Reserve for a specific buyer” box.
Selling an NFT will incur fees. OpenSea, for example, has a service fee of 2.5% and royalties of 10%. This means most sales will have 12.5% deducted from the final sale value.
Creating an NFT from scratch is currently easiest on Ethereum. While the blockchain does have the highest gas fees, having been around the longest, it has the largest ecosystem. This means the process is streamlined, and there are a lot more prospective buyers.
When you create an NFT on a blockchain, it is called “minting.” Most newcomers will be minting their first NFT as an ERC-721 token, which is considered the gold standard of non-fungibles. Large collections now also use a method called “lazy-minting,” which only interacts with the blockchain upon someone purchasing your token. This saves on gas fees and is better for the environment.
Full steps in minting can be found on your platform of choice and will guide you through the process as you go. Simply look for the “Create” button.OpenSea’s instructions can be found here (https://support.opensea.io/hc/en-us/articles/360063498313-How-do-I-create-an-NFT-).
Bear in mind that you will still need a compatible wallet such as MetaMask and some funds to cover fees for when someone does purchase your token.
There are now many websites you can use to buy, sell, and create NFTs. These are some of the most important to know, however:
- OpenSea: the biggest and most well-established NFT marketplace. OpeanSea’s catalog includes generative profile picture collections, sports cards, virtual land plots, trading cards, and even website addresses.
- Rarible: A community-owned marketplace that uses the RARI token for governance. Most of the NFTs here are art-based, but there are plenty more on offer.
- NBA Top Shot: Dapper Labs’ marketplace for NBA NFTs, built on their blockchain, Flow.
- SolSea: Solana’s version of OpenSea with many new and upcoming collections listed.
- CNFT.io: Cardano’s biggest NFT marketplace. Not yet as established as other platforms but is attracting creators with fast transactions and low fees.