NFTs are a new product that can be sold and traded in marketplaces that have exploded in popularity recently. But how do NFTs make money? How do NFT marketplaces make money? How and why are NFTs so popular, and what is an NFT?
These are all commonly asked questions about the exciting trend of NFTs, and rightly so! NFTs and NFT marketplaces can be very confusing for people who do not understand how and why NFTs and NFT marketplaces make money.
That is where we come in, with knowledge and explanations for all of your NFT and marketplace questions! In this article, we will discuss the basics of NFTs, how NFTs are sold and traded, the different marketplaces NFTs are sold, and how the marketplaces make money!
Without further ado, let’s get into it!
What is an NFT?
Let’s begin with the question on everyone’s mind: what is an NFT? Many people think that NFTs are overpriced digital art or media pieces sold online. And while those people are not exactly wrong, they are also not exactly correct.
NFT stands for non-fungible token. Now, what does that mean? It means that an NFT is a unit of data stored within a blockchain. A blockchain is a sort of digital ledger that keeps track of the data, and certain aspects of the data can not be changed, like who created the NFT in the first place.
The NFTs can be sold, transferred, and traded between owners and buyers. NFTs can be various types of data, like art, photos, memes, videos, music, and other types of digitalized media.
To create an NFT, one must get a crypto wallet, exchange fiat money for crypto on an exchange like Coinbase, add crypto funds to the wallet and then use the crypto to pay for gas fees.
Gas fees are the costs associated with minting the NFT and go to “miners.” Just a heads up, gas fees do not go to the actual NFT marketplace; they get paid another way which you will see below.
Those of us who create NFTs (like me) on the Ethereum blockchain can expect to pay between $100-200. The fees fluctuate based on demand. I’ve seen gas fees reach $700.
If you are ready to mint your NFTs, I highly suggest you read these articles to learn ways in which to save money.
- How To Sell NFTs Without Gas Fees (or less) | Complete Guide
- The 3 Cheapest Ways to Mint an NFT: Full Breakdown
Each NFT, when sold or traded, comes with a digital certificate of authenticity to show proof of ownership by the recipient of the NFT (basically, the NFT is the proof of authenticity and that important data is stored in the blockchain).
NFTs, unlike cryptocurrencies like Bitcoin that also run on blockchains, are unique and identifiable because each token is unique. That means you can see each unique NFT as it moves around a marketplace or a blockchain.
So, essentially, an NFT is a unit of data that is sold and/or traded among users in a blockchain marketplace that is unique and identifiable and needs proof of ownership or authenticity.
Because they are all unique, NFTs have different prices, assets, and values, making them not mutually interchangeable at the same and constant rate as Bitcoin or other cryptocurrencies.
How are NFTs Sold?
The majority of NFTs are sold on the Ethereum blockchain. There are other blockchains and specific marketplaces that sell particular types of NFTs as well.
Online in these marketplaces and blockchains is where people make NFTs, or sellers can create accounts that act as stores where other people can come and buy their NFTs.
There are a lot of different marketplaces to look for NFTs on and a handful of incredibly popular marketplaces that we will touch on soon that have specific types of NFTs depending on their media type, like art or music.
The types of NFTs in the marketplace depend on what marketplace you are exploring. Each marketplace has its own pros and cons.
Different NFT Marketplaces
Now, let’s explore how different NFT marketplaces make money and what types of NFTs are available in the marketplace!
Below you will find several different popular NFT marketplaces and an explanation of how they make money. You will also learn about the types of NFTs sold in each marketplace.
OpenSea is a digital NFT marketplace that makes money through service fees. We are all familiar with the idea of service fees, but just in case you are not or just need a refresher on service fees, here is a quick explanation!
Service fees are fees that websites or companies can charge for a variety of reasons. Like when you order something from an e-commerce website for $15, your total cost after the service fees are added might be $17.50.
The fees are imposed to cover the costs of other aspects of getting you your order.
It is the same thing with OpenSeas service fees. It is how the marketplace turns a profit. For OpenSea, the service fees are charged whenever an NFT is sold on the marketplace. So every time someone buys an NFT and someone sells an NFT, the marketplace gets a percentage of the sale as a service fee for using their marketplace.
OpenSea has a service fee charge that is equivalent to 2.5 percent of the sale. So if you sell an NFT for $50, the OpenSea gets to take $1.25. Think of it as OpenSea making a commission of your sale like how retail workers that work on commission get paid a portion of their sales.
However, despite these service fees, OpenSea has a marketplace structure that is entirely free to access and use. You do not have to pay OpenSea to list an NFT for sale or to browse the marketplace.
OpenSea is a very popular NFT marketplace which some might even call dominant, which proves that its service fees are reasonable enough that customers and sellers keep coming back for more!
OpenSea has tons of different types of NFTs to pick and choose from, including art, domain/web names, collectibles like CryptoPunks, trading cards, and more!
Another big name in the NFT marketplace game is Rarible, another money-making NFT marketplace that is one of the top dogs in its arena.
Just like OpenSea, Rarible makes money by charging a service fee per transaction on the marketplace. The service fee is 2.5 percent of every individual sale completed on the marketplace.
Through this method, Rarible has exploded in profit, raking in over $16 million and counting since its origination in 2019. This massive amount of money makes Rarible one of the most profitable and popular NFT marketplaces today.
Like many NFT marketplaces, Rarible is built on the Ethereum blockchain, so NFTs are purchased with the token of the Ethereum blockchain, Ether.
Thus, to buy anything on Rarible, buyers need to connect their Ethereum wallets to the marketplace. Wallets like MetaMask or Argent.
Like OpenSea, Rarible has a “Lazy Minting” feature which defers the gas fees to the buyer at the time of purchase. This way, creators don’t have to come out of pocket to list their creations. I go way deeper into Lazy Minting with Rarible in this article: How To Mint an NFT for Free | Rarible Style.
Mintable is another NFT marketplace that is popular for the buying and selling of NFTs. Mintable makes money through royalties that are engrained into the contract of the blockchain it was built and exists on.
Because the blockchains are very open and transparent, it is easy for sellers to see when their NFTs are resold. This also means they can see who is the new buyer and how much the NFT was sold for.
Remeber the blockchain stores all this information and that’s especially important when collecting royalties for all future re-sales.
Mintable has the option of using Immutable X, which is a secondary layer to Ethereum and doesn’t require gas fees for transactions. This cuts the costs for both buyers and sellers and of course NFT creators.
This makes Mintable very accessible and great for people who are new to NFTs and want to learn about the process of buying and selling.
Mintable makes money in a similar way to OpenSea and Rarible, with service fees. However, because they have gas-free items and options, there are some differences in the percentages charged per sale of an NFT.
When normal NFTs are sold on Mintable, there is a 2.5 percent service fee, exactly like OpenSea and Rarible. However, if a gasless or gas-free NFT is sold, there is a 5 percent service fee charged from the total price.
Lastly, when NFTs that are “printable” (created and listed before being minted) are sold, they are charged a 10 percent service fee. Each of these service fees is how Mintable creates revenue and makes a profit.
Nifty Gateway is another NFT marketplace that uses royalties, gas fees, and service or sales fees. However, Nifty Gateway is a little bit different than other NFT marketplaces. Nifty Gateway makes money in a handful of ways rather than one clear-cut money-making fee.
Nifty Gateway, like Mintable, OpenSea, and Rarible, makes money from royalties that are charged as a percentage of every sale made on their marketplace. However, Nifty Gateway also charges secondary sales.
When an NFT on Nifty Gateway is sold, Nifty Gateway takes 5 percent of the total sale price, as well as 30 cents to cover the transaction fees.
When a secondary sale is made, 5 percent goes to Nifty Gateway, and 10 percent goes to the original artist who sold the NFT first. That means it is harder to turn a profit by reselling NFTs on Nifty Gateway.
Not all of the fees on Nifty Gateway are completely clear or transparent, so something to watch out for is rapidly accumulating gas fees that can create a higher cost of using the Nifty Gateway marketplace.
SuperRare makes money similarly to the NFT marketplaces that we have already talked about. Still, it has slightly different rules and percentages of the royalties that are taken for each sale.
The artist or seller’s royalties on a primary, or the first sale, of a piece is often called a “mint sale.” For a mint sale completed on SuperRare, the artist or seller gets 85 percent of the sale price. SuperRare takes the other 15 percent remaining as a commission fee for using their marketplace to sell.
On a secondary sale, meaning a sale where someone is re-selling a piece that they bought from someone else on SuperRare, the secondary seller gets a 90 percent commission of the sale. The remaining 10 percent is given to the original artist or seller as royalty for their work.
SuperRare also earns money by using a 3 percent network fee on all sales, regardless of whether they are primary or mint sales or secondary sales. This 3 percent is paid by the buyer of the NFT and goes directly to the SuperRare marketplace.
KnownOrigin is another NFT marketplace that is fairly popular among NFT sellers and buyers. The KnownOrigin is known for being easy to list new NFTs, set their selling prices, and quickly sell new NFTs.
KnownOrigin has recently updated its artist royalties rules. For all secondary sales made on KnownOrigin, 12.5 percent go to the creator.
For all secondary sales on KnownOrigin, 85 percent is kept by the secondary seller, 12.5 percent is given as royalties to the original artist or seller, and 2.5 percent is taken as royalty for the KnownOrigin marketplace itself.
That 2.5 percent royalty is how KnownOrigin makes money. On primary sales of NFTs on KnownOrigin, 15 percent is taken as a commission fee by KnownOrigin. This is another, more prominent way that KnownOrigin makes money and turns a profit. The other 85 percent of the primary sale goes to the artist or seller.
It is important to note that secondary sales include all sales made after the second sale. This means that the original artist will still receive 12.5 percent of the selling price as royalties each time that the NFT is resold.
Overall, the main way that NFT marketplaces make money and turn a profit is through the use of royalties, service fees, and commission fees. Most of these fees are communicated upright by the NFT marketplace.
One the biggest challenges with minting, buying and selling NFTs on the Ethereum blockchain is the gas fees. Gas fees fluxatute so budgeting your creative endeavors can be challenging. The cool thing is that I have provided a few guides on this website to help minimize those fees. Check out:
- How To Sell NFTs Without Gas Fees (or less) | Complete Guide
- The 3 Cheapest Ways to Mint an NFT: Full Breakdown
Make sure you research the marketplace you are interested in and enjoy your adventure buying and selling NFTs! NFTs are not going anywhere so be sure to jump in on the digital revolution. Get hyped with this article: 10 Reasons Why NFTs Will Change the World.