Guide to NFT Marketplaces

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robertstevens

Robert has reported for a variety of international publications including the Associated Press, The Guardian, Vice, and Decrypt. Current areas of interest include the political economy of technology, cryptocurrencies, and privacy. Robert has a Bachelor of Science from UCL, and a Master's degree from the University of Oxford's Internet Institute.

In 2021, Collins Dictionary named NFT its word of the year. Short for non-fungible token, NFTs are unique cryptocurrency tokens that confer property rights over an asset, as diverse as a piece of art, an in-game sword, or a deed to a house.

NFTs are all based on blockchain technology, and like other crypto assets, the NFT market is rife with speculation and hype. Some NFTs are worth millions of dollars, and the entire market capitalization for NFTs surpassed $40 billion in 2021, according to crypto analytics firm Chainalysis.

So how to invest in this frothy market? Which is the best NFT marketplace? Like lots of crypto investing, it’s not so simple. Each NFT exchange may charge different fees and might only support a single blockchain. Some top NFT marketplaces, like Axie Infinity’s, only support a single type of NFT (like a collection from a specific game), while others, like OpenSea, are all-purpose.

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In this NFT guide, we’ll give you a lay of the land, plus explain what you’ll need to do to buy NFTs.

What is an NFT?

Before we delve in, let’s clarify precisely what we mean when we use the term “NFT”. As mentioned, NFTs are non-fungible assets, which means that each NFT is distinguishable from the last. This is different from fungible assets, like Ethereum, Bitcoin, or regular Canadian dollars, where each unit of the currency is interchangeable. If you want to dig deeper into the technology, we recommend that read Wealthsimple’s deep-dive explainer on NFTs.

The history of NFTs: a short overview

The history of the first NFT is a little cloudy, and versions of NFTs existed on Bitcoin (via platforms like Counterparty) as early as 2014. The popular Ethereum token standard that kickstarted the NFT market, the ERC-721, was created by a company called Dapper Labs in 2017.

You can trade NFTs on NFT marketplaces—websites that facilitate NFT trading. Unlike regular art, which must go to auction and doesn’t trade quickly on online, peer-to-peer exchanges, NFTs can be sold instantly on marketplaces that have more in common with stock trading apps than art auction houses. Some collections sell out within seconds of being launched, and early investors can, if they have accidentally landed on a golden goose, flip their NFTs for large profits.

The NFT market really blew up in 2021, when projects like CryptoPunks and Axie Infinity generated billions of dollars in sales between them. Some NFTs power videogames (Axie Infinity, NBA Top Shot, Sorare, Loot), others can be used as profile pictures (Crypto Coven, CryptoPunks, Bored Ape Yacht Club) and more yet function as art (Beeple’s 5,000 days, Tyler Hobb’s “Fidenza” from Art Blocks, Trevor Jones’s Batman art). This boom created fierce competition for NFT marketplaces and platforms, and attracted top artists.

NFT Marketplaces: An overview

Looking for an NFT marketplace list? As of February 2022, two marketplaces dominate what could be termed the “all-purpose” NFT marketplace—marketplaces that facilitate secondary trading of any Ethereum-based NFT, as opposed to a venue that is limited to a specific project.

LooksRare

The first is called LooksRare, a newer NFT marketplace that has processed $10 billion in volume in the past 30 days. This makes it the most popular NFT marketplace by volume.

LooksRare’s huge volume, however, is partly due to wash trading—the process of buying one’s own NFT again and again. Writes Decrypt’s Andrew Hayward, this is because of a novel token incentive model that rewards those who have pledged the platform’s LOOKS token with the transaction fee of all sales. As of this writing, stakers of LOOKS can earn 621% a year on their assets.

This has inspired erroneously huge sales that appear to be processed with the sole purpose of earning more LOOKS tokens, which can be sold for a profit on cryptocurrency exchanges. The practice is similar to the yield farming craze of mid-2020, where traders used decentralized finance protocols like Compound and Aaave with the sole purpose of earning platform-specific governance tokens.

OpenSea

OpenSea is the second biggest NFT marketplace by volume, and, Looks Rare’s recent volume blowout aside, the marketplace that is considered to be the premier destination for any NFT project. By way of example, Twitter’s NFT verification mechanism grabs metadata from OpenSea.

Like a lot of NFT marketplaces, all NFTs are, by default, searchable on OpenSea. This is because the marketplace constantly scans blockchains for new NFTs and lists them all on its platform. That doesn’t mean you can buy all NFTs on OpenSea, but simply that you can bid on them and make deals with their owners.

OpenSea was started by Devin Finzer and Alex Atallah in New York in December 2017. It supports three blockchains: Ethereum, Polygon, Solana, and Klaytn, although the vast majority are on Ethereum, the blockchain that is home to the popular NFT token standard, ERC-721.

Although you trade on OpenSea with a non-custodial cryptocurrency wallet, and must pay hefty Ethereum fees for each transaction, OpenSea is a centralized company. This means that it is run by Finzer and Atallah and not by its community; if it were, it would be called a decentralized NFT marketplace (we’ll provide some examples of those later).

Centralizing the exchange has proved wildly successful for OpenSea—the company was valued at over $13 billion in January 2022—but has caused a few problems along the way. In January 2022, a design flaw allowed people to buy uncanceled listings without the permission of their owners.

And in the summer of 2021, OpenSea was alleged to have “front-run” consumers by bidding on trades before they were featured on its site. Some people criticize OpenSea for censoring NFTs: OpenSea took down Hitler-themed NFTs that were created on the platform; even though these NFTs aren’t scrubbed from the blockchain—that would be impossible—you can’t trade them on OpenSea. While Hitler NFTs might not be desirable, the debacle showed that OpenSea set the agenda for the marketplace and determined how the market would run.

Other NFT marketplaces

Most of the volume around NFTs is concentrated in just a few marketplaces, and the rest of the platforms mop up what remains. Here’s a brief overview:

  • Marketplaces like SuperRare, Nifty Gateway, and Foundation only support curated collections of NFT art.

  • Newer platforms like Sound.xyz only let you buy limited editions of music-based NFTs. There, drops sell out in seconds, and secondary trading occurs on OpenSea.

  • Rarible and Zora operate as decentralized autonomous organizations, meaning that users vote on upgrades to the protocol used governance tokens.

All of the above support Ethereum, but some NFT marketplaces are home to specific blockchains:

  • PancakeSwap, for instance, is the focal point of Binance Smart Chain-based NFT trading.

  • The Hic Et Nunc protocol (whose front-end has been shut down by its developers) is specific to Tezos.

  • Several cryptocurrency exchanges, like Coinbase, FTX, and Binance, have launched their own NFT marketplaces.

Some NFT projects only allow trading of certain assets—unlike platforms like OpenSea, you can’t trade any NFT you like. Decentraland and The Sandbox both have NFT stores where you can buy in-game assets, like parcels of land or costumes, and Axie Infinity has its own marketplace to trade virtual items, land, and monsters that power its Pokémon-inspired battling game. NBA Top Shot NFTs can only be traded within the game, which runs on Dapper Labs’ proprietary Flow blockchain. Profile-picture project CryptoPunks has its own marketplace, although you can also trade these on other exchanges.

How to buy an NFT Step-By-Step

Although there are dozens of NFT marketplaces and apps, the process of buying an NFT is pretty much the same (apart from buying from art auction houses like Sotheby’s, or exchanges like Coinbase or Binance). You need to load up a Web3 self-custodial wallet with a cryptocurrency of your choice, connect it to a marketplace and bid on an NFT—or buy it outright.

Here’s a beginner’s guide on how to buy an NFT on OpenSea, one of the most popular NFT marketplaces:

  1. Download a Web3 wallet. As of January 31, 2022, OpenSea supports 14 cryptocurrency wallets. The most popular one is called MetaMask; others include Coinbase Wallet, TrustWallet, WalletConnect, and Magic.

  2. Create a wallet. You don’t “sign up” for these wallets by entering your email and setting a password. Instead, you create a wallet and scrawl down a private key or seed phrase – the equivalent to a password. You’re the sole owner of this wallet and are responsible for keeping the details safe. You should never share your seed phrase.

  3. Find an NFT to buy on OpenSea. You can search for items on the search bar; verified collections have blue checkmarks. Taking the Bored Ape Yacht Club as an example, you can see that there are 10,000 NFTs in its collection, each with a “floor price” of 116.9 ETH, or just shy of $300,000 as of this writing. The floor price is the lowest price that one of these NFTs sells for.

  4. Check which currency the NFT trades for before you place a bid: most are sold in either Ethereum (ETH) or Wrapped Ethereum (WETH). These two currencies are identical in value, but the former is the native currency of the Ethereum blockchain and the second represents ETH that has been converted into a token that conforms with the ERC-20 token standard. The advantage of WETH is that you can pre-authorize bids that can be fulfilled once the sale concludes.

  5. Fill your Web3 wallet with the appropriate cryptocurrency and connect it to OpenSea… You can buy crypto from a cryptocurrency exchange that supports withdrawals to external wallets. Bear in mind that you’ll want to keep some ETH for gas fees—the transaction fees on the Ethereum network that go towards miners—which could cost anywhere between $20 to $200, depending on how congested the network is.

  6. Bid on an NFT or buy it outright. Sellers set the terms of the sale—you are beholden to their strategies. If you happen to win the bid or pony up the funds to buy it directly, you’ll receive the NFT in your wallet. You can sell this NFT on OpenSea, or any other marketplace, as you wish, or present it proudly in metaverse galleries.

Frequently Asked Questions

An NFT marketplace is a trading venue for NFTs, or non-fungible tokens. These are cryptocurrencies that point to things like JPEGs or short video clips. When you trade NFTs on a NFT cryptocurrency marketplace, you’ll trade these NFTs with other users, for cryptocurrencies. You usually connect to these marketplaces by way of a Web3 wallet, like MetaMask, which you add to your browser as an extension.

NFTs are popular because some people think that they are the foundation of a new kind of economy—one that rewards artists who primarily disseminate their work online, such as digital artists, musicians and animators. Some artists make more from NFTs than they would from streaming services or galleries. Holders of NFTs can present them within the unfolding “metaverse”—persistent online worlds.

Of course, that’s just one part of the puzzle. The other major reason for their success is that NFTs are a type of cryptocurrency, i.e. the same technology that has spawned a several trillion dollar market full of speculators in a little over a decade. Although NFTs are less liquid than, say, cash, their digital nature makes them more liquid than conventional forms of art, and traders think they make a great investment.

Last Updated June 16, 2022

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