How Do NFT Marketplaces Work?

The use of NFTs and NFT marketplaces are becoming more popular. What was once a niche hobby of digital enthusiasts, the NFT market is fast becoming a mainstream interest for users across all sectors and industries.

One NFT marketplace that investors and traders seem to be getting particularly excited about is LooksRare. Despite having only been launched in 2022, the platform has seen digital collectors and traders earning more than $1.3 billion in rewards so far. Moreover, the LooksRare price forecast is expecting some significant rises for later in 2023. A web3 NFT marketplace, LooksRare is powered by the LOOKS token which can be currently traded across a number of major exchange platforms. But how exactly does all of this work?

NFTs explained

A relatively new concept in terms of the mainstream buying and selling realm, NFTs are used to monetise digital content. Short for ‘non-fungible token’, an NFT is a digital token that exists on the blockchain and is based on cryptocurrency technology. Unlike physical money and cryptocurrencies, which are fungible and can be replaced, NFTs cannot be mutually exchanged. Each and every NFT is unique and has its own digital signature.

NFTs can be used to certify ownership of online collectibles such as videos, music, photos,  digital art, and other files. With the rise in popularity of NFTs, it is unsurprising that marketplaces trading in NFTs has also grown.

The marketplace

Just like physical stores where items can be bought with real cash, NFT marketplaces stock online collectibles that can be obtained with NFT assets. Users interested in trading at NFT marketplaces must first sign up to the relevant market platform. This is where digital collectors can purchase, sell, and create their own unique NFTs.

Once signed up, collectors then install a digital wallet so that they can store any NFT assets. To create their NFT assets, users upload their online items to be stocked on the platform. The user will often then have the option to choose what NFT payment unit they wish to accept for their item and will thereby set their price, which can either be fixed or by means of an auction.

There are a number of key features that define NFT marketplaces. One of the most obvious features is the storefront, which provides digital collectors with all the information needed to obtain an item, such as price, number of bids, bid expiration date, etc.

Many of the features on NFT marketplaces are designed to make the sites more user-friendly and are not unlike the tools that are often found on regular ecommerce stores. Filters, for instance, make navigation of the platform easier for collectors, especially on marketplaces that stock a large number of collectibles. Users can use filters to help them select collectables based on filters such as a particular category or price range. Similarly, search tools help users find what they are looking for on NFT marketplaces, just like buyers would use when visiting any online store. Also familiar to customers of regular buying and selling sites will be the buy and bid feature offered on NFT marketplaces. This tool enables collectors to buy and bid for NFTs that are listed on the marketplace site.

A central feature within the NFT marketplace is the wallet. As with any crypto wallet, an NFT wallet is a digital ledger that records all transactions and stores a user’s assets. An NFT wallet must support the blockchain protocol that the NFTs are built upon, as well as the specific currency intended by the user. On most NFT marketplaces, there are features that allow users to connect with any crypto wallet that they already use.

Market usages

One of the most popular sectors for NFTs is the world of digital art, which can see millions of dollars’ spent in a single transaction. As a result, there has been a lot of media attention around NFT auctions of digital artworks. March 2021 saw the first purely NFT piece of art to be auctioned by Christies, the renowned auction house. The artwork, titled Everydays: the First 5000 Days and created by artist Mike ‘Beeple’ Winkelman, was bought on the Ethereum blockchain for a staggering $69.3 million. However, this is only the second most expensive NFT artwork ever. Beeple’s digital artwork auction record was overtaken in December 2021 when Merge, a digital NFT by artist Pak, sold for $91.8 million.

Digital art is undoubtedly at the forefront of the NFT marketplace, but there is a whole range of other ways in which the market can be – and has been – used. Several internet memes related to NFTs, for instance, have been created and sold on the NFT marketplace, whilst professionals within the film and music industries have capitalised on selling virtual items. The gaming world also has its stake firmly in the NFT marketplace. One of the biggest game publishers, Rockstar Games, recently decided to make use of NFTs in its famous Grand Theft Auto series; meanwhile, metaverse platforms have started to introduce NFTs for trading virtual items.

Conclusion

NFT marketplaces are fast growing and becoming more accepted in the mainstream. Their general user-friendliness and their similarities with features used within well-known online stores is no doubt a factor in what is gradually making NFT marketplaces become more appealing to regular consumers.