How Do NFT Marketplaces Make Money?

Sebastian Parker
Sebastian Parker
Last Updated on September 20, 2021

As cryptocurrency continues to make headlines in the news, one realm of this new blockchain asset seems to be launching: the NFT marketspace. These unique collectibles are making news thanks to the large sums of money used to buy these digital assets. 

How do the marketplaces that host these NFTs stay in business? Is there a way for a new marketplace to enter this arena and still do well? It might not be too late for new players to enter the NFT game. Let’s take a look at how these marketplaces work.

NFT

What is an NFT Marketplace?

An NFT marketplace is an online marketplace website that hosts NFTs. NFTs, or non-fungible tokens, are digital assets linked to a digital art piece or another digital item. These tokens act as proof of ownership or evidence of authenticity. 

The owner of an NFT token is considered to be the sole owner of the file in question. When you buy or sell an NFT, you are exchanging the ownership of the file. You do not exchange the file itself.

To centralize these exchanges, NFT marketplaces started to appear. NFT marketplaces are websites where people can go to buy, sell, and mint NFTs. Because these ecosystems work like eBay or Amazon, you can purchase NFTs for a specific price via an auction or fixed price.

Regardless of whether you go to an NFT marketplace to buy or sell NFTs, you’ll be using cryptocurrencies and blockchain technology to verify the digital file and create or exchange the NFT.

NFT Marketplace Development

Currently, most of the top NFT marketplaces are almost solely relying on the Ethereum blockchain. This blockchain was among the first blockchains to feature NFT verification as part of its base functionality. The protocol that allows for this, called ERC721, gives the Ethereum network the ability to verify that a digital file does not have an NFT associated with it and assign an NFT to it. 

Because of this close link to the Ethereum blockchain, many NFT marketplaces look to tie a digital wallet containing Ethereum to the user’s account to fund the buying and selling of NFTs by that user. Other blockchains, such as Solana, Polkadot, and Algorand, see some use in the NFT space but aren’t as popular as Ethereum. 

Developing on any of these blockchains requires that the developer understand the way that smart contracts work. These digital agreements are created on top of the blockchain and confirm a transaction once the funds are received. 

For many NFT marketplaces, these smart contracts fire off when funds are paid to the owner of the NFT, releasing the NFT and the payment to their respective receivers. 

An NFT market saves a lot of effort and time by automating this process through smart contracts. The market allows the fees they gain to maintain the website and the hardware needed to host the contracts. 

What About Bitcoin?

Despite being the most popular and highly valued cryptocurrency, Bitcoin hasn’t been an easy choice to build an NFT marketplace. The infrastructure of the Bitcoin blockchain didn’t initially allow for easy token creation on the Bitcoin blockchain. The lack of functionality made NFT minting difficult. 

When Ethereum launched, it became the default choice for NFT marketplaces. It featured the protocols needed to create NFTs easily and boasted a faster transaction speed than Bitcoin has. Combining these two factors made NFT minting faster, resulting in a better experience for both developers and users of the marketplace. 

Example Marketplaces

While there are quite a few NFT marketplaces out there right now, that doesn’t mean new players can’t find niches to fill. Here are some of what the current big-name marketplaces are and what they do: 

  • OpenSea: One of the more popular marketplaces, this platform features NFTs from all sorts of media, such as trading cards, video games, artwork, and other digital collectibles. 
  • Rarible: Built on RARI tokens instead of Ethereum, this marketplace is focused on traditional artwork.
  • SuperRare: NFTs minted and sold on this marketplace tend to be concept art. 
  • Christie’s: A digital artist of high repute is best served on this auction-based marketplace.
  • NBA Top Shot: Cards and videos featuring NBA players and moments are the focus for the NFTs featured on this marketplace.
  • Nifty Gateway: Popular artists such as Beeple and deadmau5 have been featured on this marketplace, driving its high trade volume.

Getting inspiration by looking at these marketplaces could be a good place to start when developing your own NFT marketplace or if you’re thinking of creating your own NFTs. 

Where NFT Marketplaces Make Their Money

NFT platforms provide the hosting, verification, and transaction services for NFT transactions on their platform. To maintain their business, these marketplaces have to charge fees to stay afloat. In many cases, this comes in as a fee for handling or verifying a transaction. 

Say that you go to purchase an NFT on a marketplace for 0.1 ETH. The marketplace might require a 5% fee to be paid to verify the transaction on the Ethereum blockchain and transfer the NFT to your wallet. This would bring the total you pay for the NFT to 0.105 ETH – 0.1 ETH for the NFT and another 0.005 ETH for the service. 

Marketplaces also charge a fee when you make NFTs on their platform. Creating NFTs requires verification from the backing blockchain, usually Ethereum. 

The cost of this fee will be enough for the gas fees of the blockchain, plus a little extra for using the marketplace’s services. These fees aren’t usually expensive when compared to the costs associated with buying and selling NFTs.

Summary

NFT marketplaces make their money in almost any transaction that involves an NFT on their platform. Whether the website collects a fee from the actual transaction or from creating the NFT itself, NFT marketplaces have several ways to generate revenue for their business. 

Many of the most popular NFT marketplaces have developed their niche or business models, making them interesting case studies for developing one’s website or own NFT business.