“NFTKART - A NFT MARKETPLACE”

A Project Report Submitted in Partial Fulfillment of the Requirements for

the Award of the Degree of

BACHELOR OF TECHNOLOGY
in

COMPUTER SCIENCE & ENGINEERING

Under the Supervision of
Mr. Nitin Dixit
Assistant Professor, Dept. of CSE, ITM, Gorakhpur

Submitted by
RAHUL RANJAN SINGH (1901200130023)
AMAN SHARMA (1901200130005)
AJAY SAHANI (1901200130019)
SACHIN MADDHESHIYA (1901200130028)

Submitted to

Department of Computer Science &Engineering

Institute of Technology & Management, GIDA, Gorakhpur (UP)
(Affiliated to Dr. A. P.J. Abdul Kalam Technical University, Lucknow)
Session: 2022-23

1
 “NFTKART - A NFT MARKETPLACE”
A Project Report Submitted in Partial Fulfillment of the Requirements for
the Award of the Degree of

BACHELOR OF TECHNOLOGY
in

COMPUTER SCIENCE & ENGINEERING

Under the Supervision of
Mr. Nitin Dixit
Assistant Professor, Dept. of CSE, ITM, Gorakhpur

Submitted by
RAHUL RANJAN SINGH (1901200130023)
AMAN SHARMA (1901200130005)
AJAY SAHANI (1901200130001)
SACHIN MADDHESHIYA (1901200130029)

Submitted to

Department of Computer Science &Engineering

Institute of Technology & Management, GIDA, Gorakhpur (UP)
(Affiliated to Dr. A. P.J. Abdul Kalam Technical University, Lucknow)
Session: 2022-23

i
 INSTITUTE OF TECHNOLOGY & MANAGEMENT
Department of Computer Science & Engineering
Al-1, Sector-7, GIDA Gorakhpur- 273209 (U.P.)

Course Name : Semester : EVEN (8th Sem)

Course Code : Session : 2022-23
Batch : Project Name :

Continuous Internal Evaluation (CIE): Phase-0

Sr. Roll No. Name CO1
No. Total
Rubrics Rub 1
Maximum Marks 20
1.
2.
3.
4.
5.
6.
Continuous Internal Evaluation (CIE): Phase-I
Sr. Roll No. Name CO2 CO3 CO4 CO5 CO6
No. Total
Rubrics Rub 2 Rub 3 Rub 4 Rub 5 Rub 6
Maximum Marks 8 8 8 8 8 40
1.
2.
3.
4.
5.
6.
Continuous Internal Evaluation (CIE): Phase-II
Sr. Roll No. Name CO2 CO3 CO4 CO5 CO6
No. Total
Rubrics Rub 2 Rub 3 Rub 4 Rub 5 Rub 6
Maximum Marks 8 8 8 8 8 40
1.
2.
3.
4.
5.
6.
Grand Totals of all Phases:
Sr. Roll No. Name Phase-0 Phase-I Phase-II Total
No.
Maximum Marks 20 40 40 100
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Signature

ii
 ACKNOWLEDGEMENT

I would like to thank my project guide “Mr. Nitin Dixit”, Assistant Professor,
Department of Computer Science & Engineering, Institute of Technology and
Management, Gida, Gorakhpur, U.P. for his valuable guidance and suggestions.

I would like to thank my project coordinator “Mr. Ajay Kumar”, Assistant

Professor, Department of Computer Science & Engineering, Institute of Technology
and Management, Gida, Gorakhpur, U.P. for his valuable guidance and suggestions.
I am thankful for his/her continual encouragement, support, and invaluable
suggestions. Without his encouragement and guidance, this project would not have
been materialized. Throughout the writing of the project, I have received a great deal
of support and assistance.

I am very thankful to HoD, Department of Computer Science and Engineering,

for his kind cooperation. I would also like to thank to the Honorable Director Sir
for his kind help and support.

I would also like to thanks to all my friends who continuously supported me. I
want to express my appreciation to every person who contributed either with
inspirational or actual work to this project. Finally, I must express my very profound
gratitude to my parents. Thanks to all.

Rahul Ranjan Singh (1901200130023)

Aman Sharma (1901200130005)
Ajay Sahani (1901200130001)
Sachin Maddheshiya (1901200130029)

iii
 DECLARATION

I hereby declare that the project entitled “NFTKart – A NFT Marketplace” has

been prepared by me under the supervision of Mr. Nitin Dixit, Assistant

Professor/ Associate Professor, Department of Computer Science & Engineering,

Institute of Technology and Management, Gida, Gorakhpur, U.P. The contents of

this project report have not been submitted to any other college/university for the

award of any degree.

Rahul Ranjan Singh (1901200130023)

Aman Sharma (1901200130005)

Ajay Sahani (1901200130001)

Sachin Maddheshiya (1901200130029)

Place - Gorakhpur
Date

iv
 INSTITUTE OF TECHNOLOGY & MANAGEMENT
Integrated Technical Campus: Engineering, Pharmacy & Management
Approved by AICTE, Pharmacy Council of India, New Delhi &
Affiliated to Dr. APJAKTU, Lucknow
AL-1, Sector - 7, GIDA, Gorakhpur - 273209 (UP)

CERTIFICATE

I certify that Rahul Ranjan Singh, Aman Sharma, Ajay Sahani, Sachin

Maddheshiya has carried out this project work entitled “NFTKart - NFT

Marketplace”, for the award of B. Tech degree in Computer Science &

Engineering from Institute of Technology and Management, under my

supervision. The content of this report, in full or in parts, have not been submitted to

any other Institution or university for the award of any degree or diploma.

Mr. Ajay Kumar Mr. Nitin Dixit

Assistant Prof Assistant Prof.
Department of computer science Department of computer
ITM GIDA, Gorakhpur, UP science, ITM GIDA
Gorakhpur, UP

Place: ITM, Gida, Gorakhpur Signature of HOD

v
 ABSTRACT

Non-fungible tokens (NFTs) are transferrable rights to digital assets, such as art,
in-game items, collectables, or music. The phenomenon and its markets have
grown significantly since early 2021. We investigate the interrelationships
between NFT sales, NFT users (unique active blockchain wallets), and the pricing
of Bitcoin (BTC) and Ether (ETH). Using daily data between January 2018 and
April 2021, we show that a Bitcoin price shock triggers an increase in NFT sales.
Also, Ether price shocks reduce the number of active NFT wallets. The results
suggest that (larger) cryptocurrency markets affect the growth and development of
the (smaller) NFT market, but there is no reverse effect. The Non-Fungible Token
(NFT) market is mushrooming in the recent couple of years. The concept of NFT
originally comes from a token standard of Ethereum, aiming to distinguish each
token with distinguishable signs. This type of tokens can be bound with
virtual/digital properties as their unique identifications. With NFTs, all marked
properties can be freely traded with customized values according to their ages,
rarity, liquidity, etc. It has greatly stimulated the prosperity of the decentralized
application (DAPP) market. At the time of writing (May 2021), the total money
used on completed NFT sales has reached $34,530,649.86 USD.

The thousand-fold return on its increasing market draws huge attention

worldwide. However, the development of the NFT ecosystem is still in its early
stage, and the technologies of NFTs are pre-mature. Newcomers may get lost in
their frenetic evolution due to the lack of systematic summaries. In this technical
report, we explore the NFT ecosystems in several aspects. We start with an
overview of state-of-the-art NFT solutions, then provide their technical
components, protocols, standards, and desired proprieties. Afterward, we give a
security evolution, with discussions on the perspectives of their design models,
opportunities and challenges. To the best of our knowledge, this is the first
systematic study on the current NFT ecosystems.

Key Word: React, Tailwind, Node.js, Express.js, MongoDB, MVT, model, NFT
Marketplace, IPFS, Polygon/Matic, Solidity etc.

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 TABLE OF CONTENT

DESCRIPTION PAGE NO
PROJECT REPORT RUBRICS ii
ACKNOWLEDGEMENTS iii
DECLARATION iv
CERTIFICATE v
ABSTRACT vi
TABLE OF CONTENT vii
LIST OF FIGURES ix
1. INTRODUCTION 1-19
1.1 THE WORLD OF WEB3 03
1.2 BLOCKCHAIN & CRYPTOCURRENCIES 03
1.3 WHAT IS NFTS 05
1.4 WHAT DOES IT MEAN TO OWN AN NFT 05
1.5 HOW DO NFTS USE BLOCKCHAINS AND SMART 05
CONTRACTS
1.6 HOW ARE NFTS STORED 08
1.7 NFT PROPERTIES 10
1.8 IS NFT REALLY VALUABLE 11
1.9 NFT MARKETPLACES 12
1.10 MARKET CONCENTRATION 14
1.11 TRANSACTION FEES 14
1.12 MAKETPLACE POLICIES 15
1.13 HOW ELSE ARE NFTS USED 15
1.14 WEB3 AND METAVERSE 16
1.15 CAMPAIGN FUNDRAISING 17
1.16 KEY STEPS OF NFT MARKETPLACE DEVELOPMENT 18
1.17 HISTORY OF BLOCKCHAIN 18
1.18 MARKET ANALYSIS OF NFTS 19

2. LITRATURE REVIEW 21-40

2.1 BLOCKCHAIN PRINCIPLES 21
2.2 NON-FUNGIBLE TOKEN AND TOKENIZATION 22
2.3 COMMODIFICATION AND VALUE 25

vii
 2.4 PROPERTY, OWNERSHIP AND ALIENATION 27
2.5 COMMODITY FETISHISM 30
2.6 COMMUNITY BUILDING 32
2.7 EXISTING NFT MARKETPLACES 39

3. PROBLEM DEFINITION 40-42

4. PROPOSE MODEL 43-50

4.1 DESIGNING THE ARCHITECTURE 44
4.2 DEVELOPING SMART CONTRACTS 45
4.3 CREATING THE FRONTEND 47
4.4 INTEGRATING PAYMENT SYSTEMS 47
4.5 TESTING THE MARKETPLACE 48

5. RESULT AND ANALYSYS 51-61

5.1 RESULT 51
5.2 ANALYSIS 55
5.3 OBSERVATION 60

CONCLUSION 62-65

REFERENCE 66-69
REVIEW PAPER
RESEARCH PAPER
CURRICULUM VITAE

viii
 LIST OF FIGURES

TABLE TITLE PAGE NUMBER

1.1. Example NFT ITEM 05

1.2. System Design of NFT Marketplace 45

2.1. User Interface of NFT Interface 48

4.2. Live Auction Section of NFT Interface 49

5.1. Class Diagram of NFT Marketplace 50

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 CHAPTER 1
INTRODUCTION

Non-fungible tokens (NFTs) are unique and non-interchangeable units of data that can
signify ownership of associated digital items, such as images, music, or videos.
Supporters believe NFTs will be used in the future to represent ownership of physical
items (e.g., a deed to a car or title to a house). Token “ownership” is recorded and
tracked on a blockchain, a digital database that records data on a decentralized network
of computers. 1 NFTs can themselves be sold or traded in digital markets. However,
ownership of an NFT does not necessarily correspond to legal ownership or grant
copyright to a digital or physical item. NFT owners purchase only the right to the NFT’s
blockchain metadata or “token,” not the underlying item, unless otherwise specified.

In 2014, the first NFT was created as part of an annual collaboration event for artists and
technologists. 2 Currently, NFTs are created or “minted” on a blockchain, auctioned off,
or sold at a fixed price in NFT marketplaces (online exchanges for NFTs) and “stored”
in a buyer’s digital wallet.3 NFTs began as a way for artists to control, sell, and earn
royalties on digital artworks, but they gained more mainstream popularity after the
growth of NFT-based games and marketplaces in 2017. 4 Their use has become
ubiquitous within digital collectible and art markets, with the total NFT market
estimated to be between $17 billion and $40 billion in transactions in 2021.

Some proponents assert that NFTs make transactions more efficient and secure. They
predict that their use will expand to a wide array of applications beyond the digital
collectibles markets, such as digital identity authentication, retail shopping, and real
estate. Critics argue that NFTs are simply speculative investments, provide no additional
value over existing systems, are prone to illicit activity and scams, and contribute to the
“financialization of everything.

As the marketplaces associated with NFTs are all relatively new there is still a lack of
research regarding what drives its demand and appreciation [6]. A common trait between
other kinds of markets is that there often exists a negative correlation between the
perceived risk of the system and the willingness. to invest in high-risk elements of the
system [7, p. 290]. In order to bridge some of the gaps of understanding NFTs, it would
1
be valuable to explore if the same relationship appears in the contexts of NFTs and to
what extent.

Rapid technological advancements and its growth are accompanied by increased security
risks including those of authenticity. The uniqueness and non-fungibility of NFTs
minimizes, if not completely eradicates, the problem of authenticity and counterfeits to a
large extent by means of a digital signature of the owner incorporated in each token such
that an asset is easily traceable to its owner. Furthermore, it also addresses the problem
of the customers being deceived into buying counterfeit items e.g., tickets or artwork.
Buyers can easily trace the items on sale to owners, thereby ensuring a legitimate
purchase. Moreover, the introduction of NFTs is opening up new avenues for artistic
businesses that previously found it challenging to establish online markets in an era of
internet-based businesses due to the lack of exclusive ownership.

NFTs began gaining attraction of the masses with CryptoPunks in October 2017 but
became more popular since the largest art sale in the history, made by Mike
Winkelmann, a digital artist who sold his work for nearly USD 70 million. The sale
directed a lot of attention towards NFTs, the growth of which has been on an upward
trend since it has been getting a generous amount of attention from artists and art
enthusiasts. Previously, NFTs were only known in a limited sphere of the blockchain
community but currently have a market of their own, making up to USD 1.2 billion in
sales as of July 2021.

Although, NFT is an emerging technology, but it has gained a lot of traction among
researchers. Application of NFT is not limited to digital assets and various use cases
have emerged more recently. The key contributions of this research are summarized
below:

 We discuss the notable increase in deployment of NFTs since its inception

 We present the significant challenges posed by the NFT application in the current
technological and legal atmosphere

 We explore the diverse applications of NFTs in various domains

The research paper is organized as follows: section 2 comprises an introductory

overview of NFTs that entails the discussion of technologies that have been used to

2
create NFTs as well as its history and current market state. Then, section 3 provides a
brief look into the numerous use cases of NFTs in various domains. Section 4 presents
the challenges pertinent to the implementation of NFTs. Lastly, the conclusion in section
5 summarizes the findings of the research and presents its future direction.

1.1 The world of Web3

Web3 is a collection of concepts and technologies for how the Internet should work and
operate. It is regarded as the next step of the World Wide Web and an evolution of
Web2, which is the Internet as we know it today. Web2 is about cloud technology,
interconnection, and centralization in big websites and companies such as Facebook,
YouTube, and Twitter, often known as big tech. In contrast Web3 is about
decentralization, distribution, and tokenization. Tokenization is the concept of creating a
digital token to represent something tangible in the real world. The core idea of Web3 is
to improve security and transparency while at the same time protecting private data.

1.2 Blockchains & Cryptocurrencies

Blockchain networks are the backbone of Web3, providing both decentralization,

distribution and tokenization in one solution [1]. A blockchain network provides what is
called a ledger, a consensus, and tokens. Some networks also include smart contracts.
Tokens are the heart of the blockchain and are simply an entry on the ledger. A token on
the ledger belongs to a specific address and can only be accessed by a private key, which
means that the token is owned 4 CHAPTER 2. BACKGROUND 5 by the owner of the
private key. The ledger itself records all transactions of tokens on a network and consists
of blocks of transactions. A block contains the cryptographic hash of the previous block
so that previous transactions cannot be altered when updating the ledger. This chaining
of block hashes gives the blockchain its name. The consensus is implemented through a
number of consensus rules which are encoded into the blockchain. The consensus rules
manage how the network is operated in terms of creating new transactions, blocks and
addresses. It is through these rules that new blocks are added into the ledger through a
process known as mining. To incentivize the addition of new blocks and hence
verification of new transactions most blockchain networks include a native token that is
awarded when doing so.

3
The most famous implementations of blockchain networks are in the form of
cryptocurrencies such as Bitcoin and Ethereum [1]. Bitcoin, sometimes called the
Bitcoin blockchain, implements a blockchain network with the native token sharing its
name. Even though cryptocurrencies are often separated as a topic from blockchains,
they are in essence the same thing. Cryptocurrencies are simply blockchains that have
been attributed monetary value to its tokens. In other words, they represent tokenization
of a currency. Lastly, blockchain networks may also implement smart contracts which
are more important to some networks than others [2]. Smart contracts are pieces of
software on the blockchain network that are processed by the ledger itself. These
contracts guarantees that it executes on the network when its specified conditions are full
filled. On blockchain networks such as Ethereum they serve the important purpose of
creating new native tokens on the network through a process called minting.

1.3What Are NFTs:

NFTs are often compared to digital certificates of ownership.8 The certificate, in the
form of data recorded on a blockchain, signifies ownership of an associated digital item
not contained in the data itself. A blockchain is a digital database that records data on a
decentralized network of computers without the use of a central authority.

There are two parts to an NFT (see Figure 1 and Table 1 for an example):

NFT item: The digital item associated with an NFT is described in an NFT’s metadata
(see next bullet). These items are typically stored off-chain, meaning the item is not
directly stored on a blockchain.

NFT metadata (called a token): NFT metadata is stored on a blockchain and typically
includes information identifying the underlying NFT item, its location online, its
ownership, and transaction information.

Most users create and buy NFTs on dedicated NFT marketplaces. Users can also write
their own code to directly mint their NFTs to a blockchain. In either case, the user
uploads a digital file of the item, and through the use of smart contracts, the NFT is
“minted” or recorded on a blockchain. NFTs are meant to tokenize assets that are also
non-fungible and unique in real life, such as art and other collectibles. NFTs often exist
on the same blockchain network as fungible tokens, such as on the Ethereum network,
and contain metadata pointing to the asset it tokenizes to further separate them from the
4
fungible ones. NFT metadata stored on a blockchain is an example of a token—a unit of
data recorded on a blockchain that carries value. 12 A “fungible” token is one that is
identical and interchangeable with another. For example, cryptocurrencies are fungible
tokens since the units are interchangeable (one Bitcoin for another Bitcoin; one Ether for
another Ether). NFTs are “non-fungible,” or non-interchangeable, since each token
typically has unique attributes (e.g., an NFT token of one video file is not
interchangeable for an NFT token of a different video file).

However, multiple NFTs could represent the same digital or physical item (e.g., an artist
might sell 40 NFTs of the same image), although each NFT’s metadata would be unique.

“Everyday: the first 5000” created Beeple

Fig.1.1 Example NFT Item

Source: Christie’s, https://onlineonly.christies.com/s/first-open-beeple/beeple-b-1981-1/112924.

Notes: The above jpeg, created by the digital artist Mike Winkelmann (known as Beeple) sold as a
non-fungible token for over $69 million. Christie’s auction house facilitated the sale.

1.4 What Does It Mean to Own an NFT

“Owning” a non-fungible token refers to being identified as the owner of the NFT in the
blockchain metadata and having the right to transfer the token to someone else. The
token is often used to signify ownership of an associated digital or physical item,

5
enabled by immutable ownership records on a blockchain. However, the ownership
metadata recorded in an NFT does not necessarily represent the legal ownership or grant
legal copyright to an associated digital or physical item.13 Legal ownership rights
conveyed by an NFT may be specified via a reference in the metadata to external terms
and conditions or contracts. 14 Despite these legal limitations, participants often
purchase NFTs as a purported means for digital authentication and ownership
verification. Since it is particularly difficult to prove or transfer the ownership of unique
digital items, supporters believe NFTs are a new means for enforcing digital scarcity.
Copyright and other intellectual property issues for NFTs are further discussed in the
“Congressional Issues” section below.

1.5 How Do NFTs Use Blockchains and Smart Contracts?

1.5.1 Blockchains

NFTs are “minted” (i.e., created) on blockchain networks. Data stored on a blockchain
are continually shared, replicated, and synchronized across the nodes in a network—
individual computer systems or specialized hardware that communicate with each other
and store and process information.15 This system enables tamper-resistant
recordkeeping without a centralized authority or intermediary. On a blockchain network,
a participant uses a public key to encrypt data and a private key to decrypt the data. 16
Participants can also sign transactions with their private key, and other users can verify
those signatures with the corresponding public key. There are various kinds of
blockchains. Most share some common characteristics, including decentralization (i.e.,
no centralized authority), immutability (i.e., the blockchain records are unalterable), and
pseudonymity (i.e., users’ real-world identities are not directly displayed). Users
typically mint NFTs on public, permissionless blockchains, which allow any node on the
blockchain network to read and submit transactions.17 A smart contract will mint an
NFT by executing lines of code that add the NFT data to the blockchain. The NFT
metadata, including ownership information, are therefore accessible to all nodes or
anyone using a searchable blockchain explorer.18 Some NFTs are immediately minted
on the blockchain after the content creator uploads the file to the marketplace, while
others are not recorded on the blockchain until after sale on a marketplace.

Most NFTs are minted on the Ethereum blockchain. Some NFTs are minted on other
blockchains, such as Solana, Flow, or Cardano. Most NFTs are purchased with Ether

6
(ETH, the cryptocurrency native to the Ethereum network) or another cryptocurrency.
Price changes in cryptocurrencies often result in changes in NFT valuations.

1.5.2 Smart Contracts

Smart contracts are self-executing contracts that enable the exchange of money,
property, or something else of value without the services of a third party.19 They are
commonly used to mint NFTs, transfer their ownership, or pay royalties. More
specifically, a smart contract is a computer program, or a set of lines of code, that resides
at a specific address on a blockchain.20 Smart contracts are automatically executed by
the computers in the blockchain network if a specific set of conditions are met or the
smart contract is “called.” Once the conditions are met (e.g., the smart contract receives
a transaction), the smart contract code will run as programmed to either mint an NFT,
transfer the NFT, pay royalties, or execute some other predetermined transaction. 21 All
smart contracts rely on external transactions to trigger their functions.

Most users mint their NFTs via a marketplace, which manages the smart contract and
back-end coding to mint on a blockchain.23 Marketplaces are discussed in the section
“NFT Marketplaces.” A user can also write his or her own code to create a smart
contract on a blockchain and mint tokens using the smart contract. To create an NFT, a
smart contract must include certain code and programming commands that follow
accepted industry standards, such as ERC-721 or ERC-1155 for Ethereum NFTs. These
standards allow wallets, marketplaces, and other platforms to work with any token that
conforms to the standard.24 NFTs built on other blockchains may use different standards
or protocols.

Smart contract code is visible to all blockchain participants, which enables hackers or
bad actors to search for bugs and security vulnerabilities to exploit. According to
Ethereum’s own developers page, “smart contract code usually cannot be changed to
patch security flaws, assets that have been stolen from smart contracts are irrecoverable,
and stolen assets are extremely difficult to track. The total of amount of value stolen or
lost due to smart contract issues is easily over $1B”. The real figure of stolen funds due
to vulnerabilities in smart contracts may be much higher.

1.5.3 Off-Chain Storage

7
In most cases, the underlying NFT item, such as a jpeg image or mp3 audio file, is stored
off chain, as blockchains have limited storage space and high network traffic. Storing an
NFT’s underlying item directly on a blockchain would typically be expensive and
inefficient. Instead, items are typically stored separately on an external hosting service,
such as a centralized server (e.g., a server hosted by OpenSea), a distributed file system
(e.g., the Interplanetary File System or Arweave), or cloud storage (e.g., Amazon Web
Services).

One common misconception is that NFTs are impervious to security risks as data are
recorded on immutable blockchains. However, the blockchain secures only NFT
metadata, not the underlying asset. NFT metadata stored directly on the blockchain are
immutable27 (i.e., tamper-proof), but data stored off-chain can be manipulated. If off-
chain storage systems go offline or are discontinued, the NFT asset and any off-chain
metadata may disappear. This is called “link rot,” because following a broken link on a
blockchain will return only an error message stating that the file at the provided address
cannot be found (a “404” error).28 In this situation, the on-chain metadata may continue
to signify ownership of the NFT, but the NFT asset itself may no longer be available.
Typically, this results in the NFT losing value.

1.5.4 Address and Transaction

Blockchain addresses and transactions are fundamental concepts in cryptocurrencies. A

blockchain address is a unique identifier allowing a user to move and receive assets, just
like a bank account when using money in a bank. It is composed of a series of
alphanumeric characters generated by a pair of public and private keys. To transfer
NFTs, the owner must show that s/he possesses the appropriate private key and send the
assets to other address(es) using a valid digital signature. This straightforward activity is
typically performed using a bitcoin wallet and is referred to as submitting a transaction
to use the ERC-777 [8] smart contract standard.

1.6 How Are NFTs Stored?

Digital Wallets

A digital wallet is software or hardware designed to store a user’s cryptographic public

and private keys, which may correspond to NFTs, cryptocurrencies, or other identifiers

8
and credentials. Digital wallets can take various forms. Web-based wallets are often
installed as browser extensions or mobile applications. Hardware wallets allow users to
store their public and private keys offline without a connection to the Internet to prevent
hacking. 29 Many digital wallets can be hacked, 30 and users who lose their private keys
may lose access to their funds and tokens.

When an individual purchases an NFT, the NFT item, such as the image file featured in
Figure 1, appears in the user’s wallet through an application programming interface
(API), which allows software applications to communicate and share data. In other
words, the wallet “reads” entries from the blockchain to determine what to display. The
NFT item is still stored off-chain but is viewable in the wallet through the API, which
enables third-party software to communicate with a blockchain and leverage its data.

Tokenization of NFT

A In this part we will talk about the token standards that are related to NFTs, and these
tokens contains ECR-20 [11], ECR-721 [11], and ERC-1155 [12]. For NFTs, there are a
variety of token standards. Because it consists of a shareable Solidity smart contract
mechanism that allows developers to create new contracts just by importing it from a
library (Oppen Zeppelin source library), the Ethereum ERC-721 standard of
CryptoKitties was the first to be used for the NFT category.

Another important Ethereum version is the ERC-1155 standard, which provides "semi-
fungible" alternatives and the ability to create ERC-721 assets. Bitcoin Cash and Flow
(from the founders of CryptoKitties) are two more NFT compatible protocols, in
addition to Ethereum.

Algorithm 1: NFT Standard Interfaces

“Interface ERC721

{
func owner Of (uint25_ token_Id) external view
returns (address):
func transfer_From (address_from, address_to, uint256tokenId)
external payable;
}

9
Interface ERC1155

{
func balance_Of (address_owner, uint256_id) external view
returns(address);
func balance_OfBatch (address calldataowner, uint256 calldata_ids) external view
returns (uint256_memory);
func transfer_From (addressfrom, addressto, uint256_id, uint256_quantity)
external payable;
}”

The most widely used token standard is ERC-20. It presents the notion of fungible
tokens, which are fungible tokens that may be issued on Ethereum if certain
requirements are satisfied. Tokens are compared to one another according to the
standard. All other tokens have the same value: a random token. This has fueled the
"Initial Coin Offering (ICO)" mania from 2015 to the present. Many public chains and
blockchain-based DApps receive their initial financing in this manner. ERC-721, on the
other hand, offers a NFT standard that is distinct from fungible tokens. This is a unique
token that can be distinguished from others. Every NFT has a token_Id uint256 variable,
and the combination of contract address and uint256 token Id is globally unique.
Additionally, the token Id can be used as an input to generate unique identifications such
as zombie or cartoon character images.

1.7 NFT PROPERTIES

Because NFT systems are fundamentally decentralized applications [13], they benefit
from the features of their underlying public ledgers. The following is a list of the most
important properties.

Monetization strategies adopted by the most popular NFT marketplaces

1. Authenticity – The existence of the NFT, as well as its token metadata and
ownership, can be verified publicly.
2. Transparent Performance – The activities in NFTs, such as minting, selling, and
purchasing, are all visible to the whole public.
3. Accessibility – NFT system is impenetrable to failure. Alternatively, all tokens and
issued NFTs are available for purchase and sale at all times.
10
 4. Tamper-resistance – Once a transaction is considered genuine, the NFT metadata
and trading records are stored indefinitely and cannot be modified.
5. Usability – Every NFT has the most up-to-date ownership data, which is both user-
friendly and rich in information.

6. Atomicity – A single atomic, consistent, isolated, and durable (ACID) transaction

can be used to trade NFTs. The NFTs can all be in the same running state at the
same time.

7. Tradability – Every NFT and its accompanying items can be exchanged and traded
at any time.

1.8 Is NFT Really Valuable?

In reality, how valuable is an NFT? It is only worth what others are prepared to pay for
it. The buyers and sellers in a fragmented, distributed online market send signals about
how much they want a (digital) object. This is true for collectibles and works of art,
where huge sums are paid to acquire real, physical objects based on their perceived
scarcity. However, NFTs are confronted with two issues:

1. Are they truly as rare as they claim to be?

2. 2. Is it true that an "owner" of an NFT owns an object?

This is where the doubt about NFTs still exists. Multiple NFTs can be constructed over
an asset in theory, each claiming to be the "genuine" token representing an idea, picture,
or object. The artificial scarcity still requires a marketplace that accepts that the tokens
represent a “rare” thing.

Even more difficult is the second point. An NFT does not always imply "ownership" in
the traditional sense. The token's representation, like as a picture, can be distributed,
replicated, and viewed without restriction. Furthermore, if the NFT's initial tokenization
misrepresents the original owner, the token will spread an incorrect ownership on a
distributed ledger. Even worse, there's a chance of getting a 404 error since, in reality,
NFTs are a claim to an exclusive online location - but if the location to which the
object's "ownership" relates has been relocated, the NFT won't even disclose the proper
location of alleged ownership.
11
Further, hacking and thefts of tokens, as well as other crypto instruments like currencies
and DAOs, continue to be a worry. The code may have been stolen or simply lost when
the claimed owners look into their wallets one day. Some NFT standards are more
reliable when it comes to ensuring the protection of NFTs.

1.9 NFT Marketplaces

Typically, NFTs are sold on online NFT marketplaces for a fixed price or auctioned
amount. An NFT marketplace is a web-based platform for the sale and exchange of
NFTs, similar to exchanges dedicated to cryptocurrencies. Some NFT marketplaces
accept payments in fiat currency, such as the U.S. dollar, but most strictly accept
cryptocurrency. Owners can also sell or trade NFTs without third-party intermediaries.
Some NFT marketplace operators pay royalties to creators after each sale, enabling
continued income for artists and other content creators as NFTs of their content are
transferred and re-sold.

The process of creating a digital wallet, minting an NFT, selling the NFT on an NFT
marketplace, and transferring ownership is illustrated in Figure 2. There is a transaction
fee for every transaction recorded on the blockchain, such as minting, selling, or re-
selling an NFT. The transaction fee compensates the network for verifying the
transaction.

Fig. 1.2 NFT Transaction Process

12
billion in annual trading volume. These numbers may be inflated by illicit trading
practices such as “wash trading,” discussed more below in the “Financial Regulation”
section. According to some market analytic companies, the number and value of NFT
sales substantially increased in 2021 but have decreased in 2022. Weekly NFT trading
volume peaked at $1.07 billion in August 2021 but fell to $52 million in mid-May 2022,
according to one NFT industry data aggregator.

Although supporters claim that NFTs have revolutionized digital art marketplaces and
online ownership, many creators and users either do not earn profits or may lose money
buying and selling NFTs. Some NFTs have sold for millions of dollars, but one study
found that 1% of NFTs sell for more than $1,594 and that roughly three-quarters of
NFTs sell for less than $15. Another analysis found that a third of NFTs minted since
January 2021 ended up in a “dead collection, with little or no trade activity post-
minting.”. According to the same study, one in three NFTs trade at a price above the
minting costs and make a profit. These estimates have been corroborated by other
industry studies, which observed that one in five NFT minters realize a profit.

1.10 Marketplace Concentration

Activity in the NFT market is highly concentrated among a few marketplace platforms.
OpenSea is one of the largest NFT marketplaces, with a market valuation of $13.3
billion as of January 2022. in December 2021, the company processed 84% of the $2.7
billion spent on peer-to-peer NFT transactions that month. In 2022, another marketplace
called Looks Rare grew in market share. By April 2022, Looks Rare had rapidly grown
to process around $3 billion in transactions, nearly the same amount as OpenSea.

Buyers and sellers in NFT markets are similarly stratified and concentrated. Within these
markets, a minority of NFT artists and collectors hold the majority of wealth created
from NFT art. One study found that the top 10% of NFT buyers and sellers make as
many transactions as the remaining 90%. The process of NFT whitelisting, in which a
list of pre-approved traders or followers may purchase new NFTs at discounted prices,
may contribute to high concentration in the NFT marketplace.

1.11 Transaction Fees

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Every transaction on a blockchain network requires a transaction fee (called a gas fee on
the Ethereum network). Individuals can pay higher transaction fees to have their
transactions processed more quickly. For example, Ethereum transactions can take
anywhere from five minutes on average to multiple hours to be confirmed. Paying a
higher transaction fee may cut that time down to 30 seconds or less. If many users pay to
complete their transactions faster, the resulting “gas war” drives up transaction fees for
all participants. Gas wars are common for limited edition NFTs because buyers who lose
the gas war may not be able to purchase the NFTs. More complex transactions are also
typically more expensive. NFT-related transactions, such as minting and transferring,
require smart contracts and therefore may be more expensive than simple cryptocurrency
transfers. For example, deploying a smart contract (i.e., creating the smart contract code
on the blockchain) needs much more gas than a simple cryptocurrency transfer.

Transaction fees are variable but substantially impact the profitability of creating, buying, and
selling NFTs. Transaction fees may fluctuate based on a variety of factors, including time of day
and network traffic. For example, average daily transaction fees on Ethereum range from two
dollars to over $200 depending on the day.45 High fees may deter some users from trading low-
value NFTs. About a third of all NFTs minted since January 2021 have had little to no trading
since being minted, and another third traded below the initial cost of minting (i.e., below the
initial transaction fee to create the NFT).

1.12 Marketplace Policies

Most NFT marketplaces claim to delist NFTs that abuse or violate the platform’s terms
and conditions (meaning an NFT is removed from the marketplace but remains on the
blockchain). Some of these terms and conditions have changed over time. For example,
OpenSea initially had an approval process to prevent online abuse but later removed that
requirement. In January 2022, the company limited users to creating 50 NFTs in order to
prevent scammers from mass producing plagiarized, fake, or spam NFTs, but within 24
hours, OpenSea reversed its decision after pushback from NFT creators. In May 2022,
OpenSea introduced an automated system to identify and remove “copies of authentic
NFT content” (i.e., prevent the same asset from being minted and sold multiple times). 50
Other NFT marketplaces, such as SuperRare and Nifty, require all sellers and collections
to be verified. Common verification requirements include providing a seller’s social
media handles, contact information, or draft files for artwork. On OpenSea and Rarible,
verification is optional but may increase the credibility of an NFT. Some marketplaces
14
display special badges on verified artist profiles or NFT collections. Scammers have
previously duped Rarible’s verification process and impersonated famous artists.51

NFT marketplaces may also lack some of the basic security and oversight features of
other online platforms or marketplaces. Many NFT marketplaces do not offer two-factor
verification or require personally identifiable information (PII) for account verification.
In comparison, some cryptocurrency exchanges—such as Coinbase and Binance—offer
two-factor account verification and require PII to create an account. These exchanges
require users to provide information such as a name, residential address, Social Security
number, and supporting documents to gain access to these exchanges and participate in
trading.

1.13 How Else Are NFTs Used?

As of 2022, most NFTs are used to represent ownership and facilitate the purchase and transfer
of digital collectibles, such as digital artwork. Proponents believe NFTs will be used in the
future to represent the ownership of a broader range of digital and physical goods and find wider
application in other fields, such as identity verification and granting access to events, retail, and
online communities. As NFT technology continues to evolve, the core concepts of
decentralization, unique digital ownership, and immutability may take different forms or develop
into other new technologies.

1.14 Web3 and Metaverse

Supporters anticipate that NFTs will become an integral component of Web3 and the
metaverse.52 Web3 refers to a proposed decentralized architecture for the web built on
blockchain technologies, protocols, and applications such as cryptocurrencies. In a Web3
architecture, NFTs or cryptocurrencies could potentially be used to purchase items online,
represent digital ownership, pay royalties to content creators, and access applications and
services. Critics argue that Web3 represents a shift to a “token economy” where the need to
exchange cryptocurrencies and NFTs for most interactions and transactions results in the
“financialization of everything.” For example, tokens or cryptocurrencies may be required to
access certain Web3 platforms, creating services that are closed off to users unless they meet
certain financial conditions. Web3 is often linked to and discussed alongside the metaverse, a
highly immersive and interactive online world made possible through technologies such as
virtual reality and augmented reality. Some supporters believe that NFTs may be used in the
metaverse for “various branding, trading or identity functions within virtual worlds,” the
purchase of virtual real estate in the metaverse, or creating “skins” or physical appearances for
15
online characters and avatars.

Because NFTs can, in principle, tokenize and represent unique ownership of anything, some
supporters believe that NFTs may be used as a form of digital identity. In an NFT identity
registry, the credential takes the form of an NFT. 58 NFT-based digital identity systems could
exist outside of Web3 or the metaverse, but these concepts are often proposed together and
interlinked by supporters. Both Web3 and the metaverse are amorphous concepts, with their own
limitations and policy implications. Moreover, depending on how both develop, NFTs may play
either an integral or a small role in their architectures.

1.15 Campaign Fundraising

NFTs have been used for political and campaign fundraising, though the practice is
infrequent. Campaigns and candidates in Minnesota, California, Arizona, and Wisconsin
have issued tokens to reward donations, attract supporters, build community, and make
campaign events exclusive to token-holders. NFT issuances may also be used to signal a
candidate’s broader supporter for cryptocurrency, NFTs, and blockchain-related
industries. As of May 2022, the Federal Election Commission (FEC) has not issued
formal guidance on NFTs, but FEC Commissioner Ellen Weintraub has said that the use
of NFTs fits “plainly into existing rules and regulations” as “long as it falls within
contribution limits.”62 Some states, such as California, have issued guidance on NFTs in
campaign fundraising, clarifying that the entire purchase price of an NFT must be
reported as a contribution on a campaign committee’s campaign statements.

Monetization strategies adopted by the most popular NFT marketplaces

1. Listing fees – the NFT platform charges sellers for posting (listing) their digital
items.
2. Transactions processing charges – the marketplace takes a certain percentage
from each transaction on their platform. For example, OpenSea charges a service
fee of 2.5% for each sale.
3. Initial setup fees – the NFT marketplace charges content creators to list their
first non-fungible token.
4. Bidding charges – buyers pay a particular fee for bidding successfully for a
digital asset they want to acquire.
5. Affiliate programs – some NFT trading platforms may introduce specific
affiliate programs for their partners

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1.16 Key Steps of NFT Marketplace Development

Here are the 10 steps that showcase how NFT marketplace works:

 Defining a niche for an NFT marketplace. Among the most popular ones are
artworks, video gaming content (e.g., online characters), music, sports
memorabilia.
 Choosing an optimal blockchain framework and launching the blockchain
network.
 Creating smart contracts that will be used to mint NFTs and trigger
purchase transactions automatically if all the conditions of the sale are met.
 Launching a web-based marketplace where users can act according to their
chosen role: sellers upload their digital assets and buyers acquire associated
tokens.
 Setting up cryptocurrency payment gateways to enable marketplace users to
buy, sell and transfer NFTs.

1.17 History of blockchain technology and how it led to the development of

NFTs

Blockchain technology was first introduced in 2008, when a person or group of people
using the pseudonym Satoshi Nakamoto published a white paper describing a
decentralized, peer-to-peer electronic cash system called Bitcoin. The system relied on a
distributed ledger called a blockchain, which recorded all transactions made on the
network. This meant that no single entity had control over the system, making it
decentralized and resistant to censorship or manipulation.

As Bitcoin gained popularity, other blockchain-based cryptocurrencies were developed,

and blockchain technology began to be explored for use in other applications beyond
finance. One such application was the creation of digital tokens, known as non-fungible
tokens (NFTs).

NFTs were first introduced in 2017, when the blockchain platform Ethereum introduced
a new token standard called ERC-721. Unlike traditional cryptocurrencies, which are
fungible (meaning that one unit is interchangeable with another), NFTs are unique and
17
cannot be replicated. They can be used to represent a wide range of digital assets, such
as art, music, videos, and even tweets, and they allow creators to prove ownership and
authenticity of their digital works.

NFTs have gained significant popularity in recent years, with high-profile sales of NFT
art and collectibles reaching millions of dollars. The blockchain technology that
underpins NFTs allows for secure ownership and transfer of digital assets, and has the
potential to revolutionize the way we think about ownership and value in the digital age.

1.18 Market analysis of NFTs, including their current and future potential

NFTs, or non-fungible tokens, have exploded in popularity in recent years as a new way
for artists and collectors to buy and sell digital artwork, collectibles, and other unique
items. According to NonFungible.com, the market for NFTs grew from just $41 million
in 2018 to over $2 billion in the first quarter of 2021 alone.

One reason for the popularity of NFTs is that they allow creators to monetize their
digital works in ways that were previously impossible. By using blockchain technology,
NFTs provide a way for artists to prove ownership and authenticity of their digital
works, which can be valuable in a world where digital copies can be easily replicated
and distributed. Additionally, NFTs allow for easy transfer of ownership, enabling
collectors to buy, sell, and trade digital assets without the need for a central authority.

However, the NFT market is not without risks. One of the main concerns is the high
volatility of prices, which can fluctuate rapidly based on demand and other market
factors. Additionally, there have been cases of fraud and scams involving NFTs, where
buyers were sold fake or stolen assets.

Another potential risk is the environmental impact of NFTs, which require a significant
amount of energy to create and maintain. Some critics argue that the energy
consumption of blockchain technology is unsustainable and harmful to the environment.

Despite these risks, the potential for NFTs remains high. The technology has already
been used to sell digital artwork for millions of dollars, and there is a growing interest in
using NFTs for other applications such as gaming, music, and sports. As the market
18
continues to evolve, it will be important for creators, buyers, and sellers to carefully
consider the risks and benefits of this emerging technology.

19
 CHAPTER 2
LITERATURE REVIEW

2.1 Blockchain principles

Blockchain has proved to be a revolutionary innovation paving the way to enable the
NFT marketspace. At the crux of blockchain, it serves to be a universal ledger that stores
information across a network. Being decentralized every individual in the network
partakes in the transactional processes, it is transparent allowing each individual in the
network to view the transactions and it is verifiable thus preventing counterfeit
transactions. (Tasatanattakool & Techapanupreeda, 2018) Blockchains are currently in
many forms with the first being introduced as Bitcoin by the pseudonymous
individual(s), Satoshi Nakamoto. Probably Nakamoto realized the importance of a
decentralized infrastructure in the current sociological order and dissipated their idea
through this brainchild, a payment system with no centralized actors governing it. They
inherently proclaim the whitepaper in 2009 as a stealth innovation. (Nakamoto, 2009)
The idea of a decentralized ledger wherein the distributed, transparent, immutable
consensus nature of the algorithm of blockchain was put in place brought to the world a
new societal structure of digital money without a central authority, redistributing power
amongst the masses. (Boucher, et al., 2017)

With this technology the use cases are manifold. From peer-to-peer banking services,
music royalties, and digital art, especially in the NFT sphere the use cases have grown
very high. NFTs have become extremely viral on the Internet, from Crypto Kitties to
Crypto Punks to Bored Ape Yacht Club as the starting point where massive amounts of
money are entrusted already. Blockchain is being hailed as a technology that could
revolutionize society, using a consensus mechanism as a central component, the
technology ideally is simply a universal ledger or bookkeeping instrument where
transactions are broadcasted onto the ledger and independently verified by peers in the
network. (Aste, et al., 2017) Transactions are interlocked as chains and stacked on top of
each other in a chronological sequence using a cryptographic hashing mechanism that

20
prevents fabrication. In the first instant, blockchain can be viewed as an ICT
(Information and Communications Technology) innovation that can be used as an
organizational technology to decentralize governance constructs and used for
coordination of people and economic decision making. (Tasca, 2015) Starting as a
financial instrument the technology has mingled into several nuances in the NFT space
where works of art or intellectual property are tokenized and associated as an entry into
the blockchain paving the way to the decentralized way of creating derivative works for
commercial purposes. (Lee, 2021) The traction towards further utilizing the use cases is
growing rapidly with further inter merging into the Metaverse space enabling a
proliferation of virtual economy wherein users can reap value through unique new
markets. (Wang, et al., 2021)

2.2 Non-Fungible Tokens and the concept of Tokenization

NFTs are data units stored on a blockchain ledger certifying the authenticity of a digital
asset, it provides a certificate of ownership to the asset holder. (Nadini, et al., 2021)
NFTs being unique has one identity only and are therefore scarce. The concept of
scarcity creates a perfect marketplace for digital creators and consumers. NFTs are an
identity on the digital ledger proving proprietorship. How do we derive value from this
NFT mania? This is where the nonfungibility which banknotes are exchanged, the
agreed values based on the exchange rates are the medium to exchange these currencies.
Each banknote has the same value as imprinted on it and has a variable rate of exchange.
But NFTs are unique, once minted they are on the public digital ledger, and each time
the token is transferred its footprints or ownership changes. The important aspect to
ponder upon the value analysis here is the original owner retains the rights as the creator
of the NFT and each person trading or owning it is the respective owner who gets
incentivized each time a transfer of ownership occurs.

Vitalik Buterin creates Ethereum allowing users, and firms to independently develop
decentralized applications through smart contracts, smart contracts are a way to build
business use-cases on top of the blockchain. (Buterin, 2013) With the advent of
Ethereum, the idea of a cashless, universal system of monetary exchange gave rise to a
form of having applications built over the blockchain. The power of decentralized
notions gave birth to a new era of utilizing decentralized contracts that are present on the
universal ledger, which is tamper-proof and prevent fraud, without interference from an
21
intermediary. Using the idea of smart contracts which are essentially a set of software-
based rules on a blockchain that runs when certain conditions are met. These contracts
are mere lines of code on the blockchain. By law, these smart contracts function as ‘self-
contained, self-performed, self-enforced’ algorithms. Therefore, computer codes are
extremely inflexible to allow contracts to be determined using algorithms however limit
the need for a central authority. (Boucher, et al., 2017) Smart contracts are Turing-
complete algorithms and can solve complex problems given the set of rules are satisfied.
But the decentralized infrastructure as promised by the blockchain contemplates the
aspect of community building and collaboration. It enables individuals to come together
to collaborate and create value chains that were never seen before as envisioned in the
NFT-based projects.

The concept of tokens has changed how we value objects in the real world. We use
tokens in our day-to-day lives such as identity cards, driving licenses, and airline tickets.
They can be of different types for instance some are permanent, and some are temporary.
Each has an attribute, and these attributes are embedded on the universal blockchain-
based ledger, for instance, Non-Fungible Tokens can vary from providing access rights
to just a visual digital artwork proving authenticity to allowing users to access a certain
business case, like an airline ticket; contemplating different types of tokens such as
access tokens, security tokens, crypto collectables, identity tokens, etc. (Voshmgir,
2020) The attribute of an airline ticket is that it allows us to use the services of an airline,
once the job is done the ticket is of no use. In the case of NFTs, the same ideology is
used but in a digital nature. On the blockchain, once an NFT is minted a certificate of
authenticity is created which conveys to the world that no similar token exists. Thus,
these tokens are unique and therefore scarce. (Chohan, 2021)

Drawing from the NFT mania that the Internet is going through right now, it is difficult
to speculate its real value. Digital art mania has grown with the evolution of
CryptoKitties, CryptoPunks, and so much more projects coming up every day, the
authenticity, or the proof of ownership aspect of these digital assets is a mere certificate
given to the asset owner. (Nadini, et al., 2021) The concept of scarcity creates a perfect
marketplace for digital creators and consumers. Thus, NFTs are aesthetically an identity
on the blockchain ledger providing a sense of proprietorship. Significant use cases of
NFTs are on the rise with inter merging of its markets and expansion into other
territories such as gaming, metaverse, and the art industry. NFTs are prone to two major

22
aspects, one is the perceived notion of authenticity behind the material object, and
secondly an accumulation of value based on ownership. Trading cards have been in our
societies for a long time, a barter means of collecting and exchanging value through this
has created rarity which builds its value. The physical nature of trading cards allows
masses to influence community formations and this phenomenon dates to the 19th
century when baseball and photography amalgamated to create baseball cards. (Murray,
2021)

What gives NFTs their value lies in their rarity, expected future value, and provenance.
Provenance is simply the certificate of ownership, history of ownership. A classic
example of this is that the Mona Lisa painting has been in the hands of great kings and
that gives it the right to be valuable. Not simply because it is a great work of art which it
certainly is, the authenticity behind it has been certified by ownerships, and the hands of
possession have transferred along with history. NFTs are blockchain-based tokens
representing ownership over content creating value for many. Blockchain has immense
potential and NFTs however being a small piece of the pie, there are significant ways
this could refurbish societal shifts.

Contextualizing value creation through ownership can be situated in theory as the roles
and rights of an individual(s) implying irrevocable control over resources, archetypally
this ascribed ownership over assets shapes those involved in value creation. (Foss, et al.,
202) Scholars in this arena have regarded ownership as a force for economic value.
(Barney, 1986) Acquiring potential rights of ownership asserts power over deploying
resources in different ways, from acquiring, and investing to selling and ultimately huge
potentials to maximize value creation. (Hart, 1995) But the question of ownership posed
here is what tangible or intangible value the NFT holds in terms of tokenizing it.
Holding ownership over an object should ideally mean one has complete power over
what they own and how they use it.

In this current state of transition, NFTs are becoming a gateway to digitalize everything
into tokens or behave as a ‘value machine of everything’. (Wang, et al., 2021) It is
anticipated that NFTs will bridge the value between the real and the digital worlds, they
would connect physical and digital entities, thus pipelining value exchanges. The
emerging parallel worlds are an interesting phenomenon to look at since linking real and
digital worlds would reform the ways of perceived mass value. If ownership is

23
transferred in the digital world, it holds tremendous perceived value in the real world,
the corresponding ownership structures also change, and it is quite complex to
determine. (ibid).
2.3 Commodification and Value

To contemplate the idea of commodification, Karl Marx idolized the concept of

commodity as something that is outside the human consciousness, an object that satisfies

the human needs or wants of some sort. A commodity is simply an object that fulfils

human desires. There is no difference if it is derived from the workers’ labor or as a

means of production from a factory through mass production, it simply satisfies the

wants when purchased or traded. (Marx, 1867) Further two inductions are formed in the

form of ‘Use Value’ and ‘Exchange Value’. The utility of the commodity makes it

usable, whereas ‘exchange-value’ is derived when the commodity can be exchanged for

something of importance, which means the commodity can have any natural property

but can be substituted for a significant usable value that is assessed by the societal
standards. (Marx, 1867) Exchange value corroborates the purchasing power of a
commodity through the means of exchange. Exchange value involves comparability
whereas use values are non-comparable. From a Marxian standpoint, use-value tends to

connote how purposefully an object can be used, the utility of the object’s use case

makes it valuable, also the use case of the object is realized only when the object is

deemed fit to be used. The meaning of value has evolved in philosophical notions

throughout history from Aristotle to Adam Smith to David Ricardo. According to

Aristotle, the notion of value is subjective, and he believed that commodities must be

exchanged with a set standard of measure and the measure is to be implied by human

wants. Contemplating this definition of value, Smith and Ricardo had similar definitions

and stated that value is determined from the equivalent labor put into the creation of the

object. (Ricardo, 1817) (Smith, 1776) The need to exchange goods for use cases were

resolved when economies started to form. The need for physical money brought us a

‘token’ that could be exchanged for something we desired. The existence of such tokens
in the form of coins has been in subsistence since ancient times dating back to the
Lydians, Romans, Chinese and Mongols. (Neiburger & Spohn, 2007) (Pickering, 1844)
24
Not just that, the hunter-gatherers’ societies too used a similar form of exchange when it
comes to tokenizing objects or favors and obligations. (Harari, 2015) Now the

usefulness factor of a commodity is characterized by the essence of a human-defined

yardstick, or an external function serves as a universal equivalent of exchange that

abstracts the reality between value created through labor and its possible exchanges.

Here, according to Marx, commodities are definite quantities of coagulated labor and

time expended in producing it. (Marx, 1867)

Further, the essence of a commodity is that it is produced for its exchange value, an
object is created for it to be sold, Marx sees that commodity production for selling is the

prime result of capitalism. Commodities being the fundamental units of capitalism,

economies are formed from an intense accumulation and exchange of commodities.

From Marx’s lens, there is a difference between money and capital, in the sense that a
commodity is transformed into money, which is again transformed back into a
commodity and the cycle repeats. From this basic arrangement of the market system,
people produce commodities to obtain money in order to further obtain commodities
they deem valuable. Now from a capitalist’s perspective, money is not a means of
exchanging commodities but rather producing more commodities to convert them to
produce money. For capitalists, money is used to obtain more money by relying on the
means of production, the labor that is put by the workers is sold as a commodity to the
capitalists. Since the commodity produced by the worker is not important to themselves,
the capitalist sells it in the market for more money. (Marx, 1867) Marx accounts for the
exploitative relationship between the capitalist and the laborer where the labor is reaped
for the greater good of the capitalistic economic system.

In a nutshell, commodities such as air and water have extremely high use value but the
least exchange value; diamonds, on the other hand, have extremely high exchange value
but their use cases are limited to ornamental significance to the very least. This brings us
to a point where we ponder upon the paradox of value where the context is important.
The marginal utility of water is constant as it is a life necessity but buying a diamond
ring before one’s marriage is quite high as well, a day after the marriage, the marginal
utility of the diamond substantially lowers for the person who just purchased it but its
value in the market still stays the same.

25
From the classical economists, it has been evident that commodification is a social
process, the value driven and the value perceived is bound to change. The
commodification of an object is etched in the history of the object. The inscribed
meaning attached to the object is what derives value in it. (Appadurai, 1986) It is seen in
the art industry that there are objects that have attributes that have less or no utility, but
the object is valued high in certain social circles. The interpretations may seem different
for a common man to understand a particular kind of art, but the construction of value is
greatly dependent on how humans interpret it. (Mackenzie & Bērziņa, 2021) Similarly,
NFTs are objects with a social life whose meanings change with time or provenance.
The interesting thing to note is the association of the NFTs value from the ownership
and property aspect since it does not represent the commodity but rather a certificate that
denotes the commodity.

2.4 Property, Ownership and Alienation

The concepts of private property and ownership have been debated widely by scholars
quoting the different degrees of freedom that it involves. The word ‘property’ has
several meanings, but it seems to connote something, an object forms a relationship
between a person(s). Ownership is a virtue that sets these relations and is constituted by
rights and duties among the person(s). Most dwell on the idea that property is something
as a thing instead of a social relation embedded in the process of production. (Keyes,
1981) Marx tries to define property as an abstract or eternal idea, an illusion of
metaphysics and jurisprudence. (ibid) Further, the context of production is in its broadest
sense and the materialistic conception of property is contexed through a series of active
production and reproduction of human existence and property.

In other words, for a property to exist there is some presupposition of some other kind of
labor in existence. This means that property is the realization of man’s labor. Marx
correlates the idea of property as a fruit of labor and contextualizes two thoughts; First
‘property as a social relation’ asserts the fact that the object is recognized by a group or
society and considered valuable, it has relations with its owners and exclusive rights
towards possessions, use and disposal. Second, ‘property has a historical significance’
which asserts continual historical development and changes. He ideates that the history
of humanity must be studied in connection to the relation of exchange and the mode of
production. (Keyes, 1981) Thus, to sum up, Marx’s ideology of ownership and property
26
we can say that ownership is the relationships that individuals hold with a reference to
the material, and it is a product of labor. (Grunebaum, 1987) Also, Greenbaum describes
in his works on private ownership that “Private owners have the rights to use and
manage what they own and as they please.” (ibid)

Property is a general term that defines a set of rules that regulate people’s access or
control over land, resources, goods, ideas, intellectual products, etc. (Waldron, 2020) It
is also argued over the differences between ‘property’ and ‘ownership’, several jurists
have argued on removing these two terminologies from the technical discourse of the
law. (Grey, 1980) These contentions appear on the aspect that calling someone the
‘owner’ of something never really portrays the exact information about their rights on
the object. In a similar fashion NFTs as discussed earlier, point to an instance of the
object but not the object itself. Many implications have been drawn towards the plurality
of property arrangements, shedding light on the aspect that there exists one owner but
several sub-owners with relevant rights. (Dagan, 2011) Correlating this to the NFT
scenario, there is always the first owner of an NFT and as it is transferred or traded to
others, they subsequently retain a certain royalty. The royalties come in the form of
cryptocurrencies. Reselling of the NFT works allows the users to earn royalties and
hence are valuable. (Mackenzie & Bērziņa, 2021)

One thing is certain the early adopters in this NFT space are making lots of money and
the biggest question to ponder is whether NFTs are a gateway to making money through
the cycle of exchanges. As NFTs incentivize based on the transfer of the asset, the
rewarding mechanism is how people are making money. As the technology is new for it
to succeed further it needs to be tied up with conventional property laws. A clear
distinction between ‘digital personal property’ and ‘intellectual property’ would help
buyers and sellers together. (Fairfield, 2021) At the moment, buyers of NFTs believe
they are buying personal property, and the seller claim to be selling them. The value
proposition of an NFT is based on the narrative that the owner can use, enjoy, display,
and dispose of the assets without the need of any third party since it is easily broadcasted
on the blockchain ledger.

This contrasts with the traditional case of intellectual property licensing wherein a movie
or book purchased from Google Play or Amazon Kindle is never owned, rather a copy is
licensed to the user. (Fairfield, 2021) A potential use case is for digital artists, and

27
musicians to sell their works as NFTs and only the organic consumer base buys the high-
priced artefacts building a community of shared beliefs and opinions. Other consumers
flock to their celebrity-based channels, webpages that sell NFTs of their kind, this
further flourishes community building.

Hegelian concepts on ownership have been extensively discussed in the political

discourses along with Marx and there are accounts of both individuals with contrasting
notions. Hegel sees private property as necessary for the self-consciousness of free will,
for Hegel freedom is granted to individuals who by nature possess mind and will
whereas Marx sees how a property influences the worker class and the capitalists, he
analyses private property affects the workers (proletarians) and how the bourgeoisie
controls the means of production. This association alienates individuals from the
fulfilment of freedom. (Hidalgo, 2013)

Humans have represented ideas through works of art, music, and literature, through their
creative process which demonstrates their individuality in a certain scape. They take
possession of things or objects by creating them or marking them as theirs. (Hegel,
1820) According to Hegel, alienation occurs because an object is possessed by the
person themselves and they can alienate from it since they have a command over the
property. Marx on the other hand asserts that the bourgeoisie owns the means of
production and the worker’s labor which for them is a commodity. Marx discusses that
private property is the main cause behind alienation. Alienation is a state of
estrangement or separation from products of labor. An alienation test is a major
influence considered in the paper, where a test of the subjective experience of alienation
was conducted. (Maddi, et al., n.d.) In this study, powerlessness was professed as a
major element in contemplating despair over social or personal relationships. (ibid)
Alienation of digital labor is portrayed by alienation from the product of labor as a
means of production, i.e. characterized by private ownership and human experience
under capital’s control Alienation is a state of separation and in today’s context takes the
shape of digitalized labor, in the realm of digitalization corporate platform on the
internet bases the exploitation of user’s unpaid labor whereby content creation for fun or
social networking, etc. are activities creating value for the companies themselves.

An analysis of social media as a tool, objectifies labor as human experiences, Christian

Fuchs goes on to describe the implications of these experiences as isolated and not

28
connected, and social media uses human shared experiences for economic purposes.
(Fuchs, 2010) Web 3.0 idolizes a more peer-to-peer rationally integrated society but
questions in this thesis portray whether such societies would create better value for
people. Alienation from Marx’s perspective is a form of surrendering control and
separation from the self and the creative prospect. A society based on a capitalistic
economy reduces an individual worker to become a mere commodity or an instrument of
production who has less or no control over their aptitude. (Marx, 1844) Here, a similar
connotation lies when alienation occurs in a digital scenario, alienation from the product
of labor in a digital context connects to commodity fetish with dual value perception i.e.,
use and exchange value, in alienation from digital labor there is coercion by isolation
and organic social connections, and as a means of production, humanistic experiences
are reaped for profits by larger organizations making human actions alienated from the
value perceived. (Fuchs, 2010) One of the major aims of this thesis lies in this conjecture
whether NFTs create value for the individuals or are mere tools of alienation, hence the
study tries to understand how much value is reaped from owning NFTs.

2.5 Commodity Fetishism

Fetishism towards commodities from a Marxian standpoint is described as relations

between the production of labor as social entities rather than relationships between
people. This social arrangement mediates through market exchanges, i.e., buying and
selling of commodities. Marx describes that there is no absolute connection between the
physical form of the objects in exchange for themselves, but they appear to the human
brain as an attachment to the product of labor, this fetishism attaches itself to the product
of labor once they are produced as commodities and thus non-separable from the
production process of commodification. (Marx, 1867)

Fetishism according to Marx connotes a dual state, one that is a tangible or intangible
commodity and the other that exists between the social and material relationships
between people. However, in commodities in a capitalist regime, social relationships are
not defined by people but rather by inanimate objects. Commodities in their truest form
are derived from multiple social relations, for instance, a wooden chair is built upon
several social constructs by the person who cuts down the wood from a tree, gives it to a
manufacturer, the designer of the chair and finally the end customer buying the chair
29
from a retailer. Multiple social relationships exist throughout the lifecycle of this chair
and the mysterious nature of the commodity thereby creates a fetish for each level of
relationship between man and things, but the relations are meaningless, the person who
buys the chair does not have any social relation to the wood cutter or the manufacturer.
Manual labor, however, has taken the form of digital labor in today’s context of
digitalization, consisting of a variety of online value exchanges the production of digital
labor is contested through technological platforms. (Fuchs, 2014) And the fetish that
existed in the form of physical and tangible objects takes the form of digital and
intangible formats, in a similar fashion objects like NFTs are not valued until they are
taken to the market for exchange or unless there exist business cases surrounding them.
Private labor has taken the form of social labor at the point of exchange, for instance, an
NFT creator is bound to sell their creation to earn value and thus the interaction is not
social rather the interaction is between the exchange of those digital commodities.
Commodity fetishism in its nuances counter argues any form of sexual fetish or Godly
fetish but a form of invisible interaction of an object and the man himself, the objects
develop an unfathomable, mysterious characteristic of private labor that stays hidden, a
world of social relations exist between things and not between people. (Marx, 1867)

Under a capitalistic scenario, commodities are assigned some monetary value, and
humans perceive or rather fetishise and believe an object has an intrinsic value for
themselves. In this viewpoint, digital objects create substantial fetishism and bring
humans to develop material relations, since human beings are already in an integrated
state of digital materialisation where they succumb to digital objects subjected to
algorithms. (Hui, 2016) A commodity can be a very trivial thing according to Marx
however when it comes to NFTs, a polarised thought process is driving masses to cling
to it, there are two groups of people, one that believes in NFTs can be a value machine
and the others consider it a hoax. (Boom, 2022) David Harvey has discussed the concept
of oxidisable money, which means an alternate form of money that prevents power
accumulation and a fetish desire. (Harvey, 2010) From this standpoint, a new kind of
NFT known as Oxidisable tokens was recently created and which oxidises at a rate of
1.5% annually and ensures ownership for up to 67 years only on the blockchain. The
idea behind such NFTs is they prevent fetishism towards owning them and prevent users
from value buildup or inheritance. (Libcom.org, 2022) As the valuation of these tokens
increases, it however goes against the fetish desire of surplus gathering rather dissolves
after a certain time, like Harvey in his works has said, monetary systems need

30
reformation where excess money is either taxed away or dissolves and cannot be stored
like air miles. (Harvey, 2013)

2.6 Community Building

Communities are built out of social relations and most communities are
anthropologically derived from kinships and are important working nature of simple
societies once societies become more and more intricate the social relations are
substituted with more complex kinships. Presumably, kinship is a more natural and
inevitably essential component in groups develop connections based on this but as
societies grow towards more capitalistic structures the relationships take the form of
injunctions of modernity. (Alber & Thelen, 2022)

Further, individuals are connected to multiple communities at a single point in time, for
instance, neighborhood, workplace, church, hobby, political, etc. Being a part of a
community varies between an individual's life span and can change according to an
individual’s needs. Local communities might not be as essential in the modern day as
once they were when resources and economic needs were not met by the residential
environment, but many rely on smaller local environments for social, emotional, and
physical well-being. (Hyde & Chavis, 2008) Durkheim has observed implications such
as communities developing around interests and skills, for instance, profession. (ibid)

In his works in Gemeinschaft und Gesellschaft, Ferdinand Tönnies describes two kinds
of societies that exist in our teleological doctrines. Gemeinschaft refers to the natural or
inborn state of affairs or membership in a society that is undeniable, for instance, one
who is born in a country or tribe sticks to that throughout their life and such identities
cannot be cut off, being born in a certain race or colour is just natural. Gesellschaft on
the other hand are memberships in certain smaller communities where one looks out for
their own well-being, such communities are created out of rational decisions and
collective cultural intricacies between actors in that smaller community. (Tönnies, 1877)
The NFT scenario and blockchain have multiple underpinnings in bringing individuals
into societies together and a major focus of this study relies on this aspect of figuring out
how NFTs play out building collaborative societal constructs. In the case of Mutant Ape
Yacht Club, merchandise can only be purchased if an individual holds a MAYC NFT. In
order to reap value, club members flock together for multiple reasons from exclusivity,
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marketing air drops (meaning extra benefits from the NFT community members which
are dropped into the accounts of the users’ crypto wallets), voting and governance from
community members add added value towards the direction of NFT projects. (Sirise,
2022)

Management and organizational changes have been put forward assuring there are shifts
from traditional internal value creation to co-creation by going outside the organization,
this paper (Lopdrup-Hjorth, 2013) puts forth the benefits on both sides i.e., a win-win
situation for both the organization and end users, the common interests through the
involvement of all actors together creates exploitative value and is a modern transition.
NFT communities showcase a similar ideology by allowing people to partake in shaping
a brand and building an internal economy through utility tokens. Further, a growing
interest is shown in the possible evolution of communities through NFTs, in the Web 3.0
environment identities and tribes are forming and this perhaps brings a sense of
satisfaction which is a value to the users of being a part of a community. (Sirise, 2022)
As interactions are an important element in society building, NFTs are contested to be
powerful tools in facilitating the active involvement of users with other cocreators
enhancing value creation. (Majer, 2022)

This brings us to discuss the notions of NFTs from the theoretical viewpoints of
philosophical literature stated above and develop the problematic areas shrouding it.
NFTs use the blockchain technology that allows the idea of a universal ledger wherein
the decentralized consensus nature of the algorithm was put in place and brought to the
world a new societal structure without a central authority, this influenced redistribution
of power amongst the masses, connoting a more liberal and meritocratic mindset among
people. (Boucher, et al., 2017) At the crux of it, NFT are tokens specifying a notion of
ownership to the person buying it. Once an NFT is minted on the blockchain they are on
the public digital ledger permanently, each time the token is transferred its footprints or
ownership changes creating a new transaction on the ledger. The important aspect to
ponder upon is the value analysis, whether the original owner retains the rights as the
creator of the NFT and each person trading or owning it is the respective owners who get
incentivized each time a transfer of ownership occurs. This prompts the use value and
exchange value of it.

Since NFTs are nothing but a certificate of ownership how does it sustain so much value

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and in exchange for it why do people invest so much into these assets? According to
ownership structures, rules are set based on the commodity involved. Even on a social
notion the term of ownership grants the rights to an object, this set of relationships with
the person(s) owning the object may be either moral or legal or both. But what the NFTs
provide is a sense of ownership over the commodity, not the commodity itself. The
authenticity or proof of ownership aspect of the digital assets is a mere instantiation or
tag underpinning the authenticity or just an ownership certificate. (Nadini, et al., 2021)
NFTs are based on the concept of tokenization which means the digital asset is identified
on the ledger after being minted, and a credential or proof is imprinted on the token.
According to law, tokenization as an idea has existed and is recognized by law, legal
concepts have developed to recognize ‘objects’ to represent rights over something. Legal
and financial instruments such as securities, deeds, contracts, etc. are asserted to fulfil
transactions when conditions are met in the real world. As one tries to understand the
property and ownership link between the tokens and real-life commodities studies on the
various ‘Terms and Conditions’ of the companies offering blockchain assets
management systems such as Foundation, MakersPlace, SuperRare, Mintable, OpenSea,
etc. and portrays certain ownership issues. (Moringiello & Odinet, 2021) Several pieces
of evidence show that platforms like this do not necessarily guarantee ownership,
because if these websites disappear so does the NFT. These sites pose several bold
claims, but none provide any link between ownership and rights to the creative work, or
rather the rights to display are granted simply but not the copyright or IPs related to it.
(ibid) Since the law does not govern the terms and conditions of companies like
OpenSea, Rarible, etc. another problem lies here. (Steinfeld, 2016)

Further looking at the value perception a commodity’s value changes with context.
Commodity valuation is a process derived from its intrinsic values under optimal market
conditions. Considering the current scenario of the crazy NFT mania, if we consider it to
be a capitalistic mode of revenue generation, the triggering of new and new customers
into this market simply adds to the fact that the value of these digital commodities will
saturate at some point. Blockchain or Bitcoin to be more precise started as a means to
democratize financial transactions, a universal cryptocurrency that can be spent
anywhere breaking national boundaries, NFTs are just further applications of the same
principle. Although this is a recent technology at the forefront are those initial people
who already own the best NFTs and the power and property seem to reside in the hands
of the so-called bourgeoisie, these initial actors who already possess a better share of the

33
market are transcending the value-chain downwards. The NFT craze is thus again a
pyramid structure, a Ponzi scheme speculated by some, thereby NFTs being essential to
those wanting to gain a chunk of the pie look for another buyer and the chain goes on.
The top-level actors in the NFT market look for baits and those baits look for more
beneath them leading to a cycle of repeated buying and selling of NFTs since reselling
of the assets allows them to earn royalties. (Mackenzie & Bērziņa, 2021)

As the cycle repeats, the properties or the so-called sense of ownership transfer brings in
more money to the value chain. Marx refers to this as ‘fictitious capital’, akin to stocks
of a company, as profits fall a desperate attempt is made through new ways of
production, through news ways of capital investments to secure extra profits. He further
discusses in the third volume of the Capital that fictitious capital represents accumulated
rights and properties for future production. Fictitious capital could be defined as
capitalization on property ownerships, but it is money thrown into circulation without
any material basis to it. Thus, these are simply non-tangible asset creation or tradeable
paper wealth that moves around in circles. He adds to it stating that in the finances the
movement and transfer of capital as a result of gambling. (Marx, 1867) In other words,
the capital exists only in the form of ownership corresponding to a portion of the surplus
value which is realized later. This phenomenon is emphasized as a means of the
bourgeoisie concentrating capital while the proletariats are exploited from it perhaps.
Examining the 2008 financial crisis where people concentrated on making money
through mortgage-backed securities, a bubble was formed which Marx would compare
to an overproduction of capitalism. This corroborates the fact that centralized economic
systems lead to overproduction and eventually it would lead to chaos. The housing
market crash is the best example of a virtual sense of money being churned and
ultimately leading to a market collapse. (Corderman, 2019) Marx has been known to
support socialism and believed that if capitalism continues the working class gets left
behind. He believed that in a socialist society the want for profits is collectively based on
the needs of the working class and power solely resides in the hands of the ruling class.

As NFTs are digital in nature users do not receive any physical or tangible items when
they purchase them. In most scenarios, NFTs are only proof of ownership and not the
wholesome right unless there are specific rights or businesses developed around a
specific token. Owners do not hold exclusive rights to the content of the digital object.
(Kapoor, et al., 2022) In most scenarios, a business case would be needed to establish

34
further rights such as access tokens, rights tokens, etc. The buyers of NFTs are perhaps
alienated from what they buy, this estrangement comes from the fact that they seldom
have power over the purchased asset. This study will try to look for relationships if any
exist between the buyer and the object and if the buyers have any control over what they
buy. However, the contrasting pieces of evidence also suggest that NFT trading allows
reselling of objects thereby allowing users to earn royalties (Mackenzie & Bērziņa,
2021) being a reason for users to partake in the whole process of trading. But there are
concerns here if someone is indeed a buyer, they are coerced into involving themselves
in the trading because of the fear of missing out.

Since the metaverse is exploding to great heights or expected to grow to create virtual
and augmented realities everything seems to be tokenized as a property in these
metaverse worlds, there are interesting NFT projects with promising value but there are
more springing up each day that produce value next to nothing probably, but then again
value is a social construct and intrinsic to the context, hence it would be interesting to
see how it is perceived by masses. The concept of the metaverse is well described in the
novel ‘Snow Crash’ which later became a movie ‘Ready Player One’ which shows us a
dystopian future breaking the digital and physical spaces. (Dionisio, et al., 2013) Once
realities are uploaded into virtual reality the possibilities are endless. Considering a
futuristic situation where Neuralink by Elon Musk allows individuals to conduct brain
uploads in real life, brain-computer interfaces are highly promising, Musk’s Neuralink
has successfully addressed issues related to invasive human-computer interfacing, thus
opportunities for brain uploads are a few years away in the future. (Pisarchik A, 2019)
Interestingly this brings another application of tokenizing brains, ideas are subjected to
be intellectual properties and if one tokenizes their minds where do the possibilities end.
As a matter of question who owns the brains now, how does the chain of ownership
work if this becomes a reality? These questions at a meta-level are put forth to realize
how the concept of ownership and property could change by tokenizing objects.

As Marx notes, the fetishism of commodities is a phenomenon built on social relations

toward objects. Commodities, through their use-value, appear to be quite trivial and
understood quite easily. But from this point of view when we look at the metaphysical
subtleties if it is capable of satisfying human wants and desires, there are abstractions
and mysteries involved. The fundamental complications arise when the product of labor
takes a social form, the quantification of such labor seems implausible. (Marx, 1867)

35
The peculiar social nature of labor value is loosely coupled with the case of NFTs.
Metaverse for some critics is termed as a vague concept or called a “feel-good place of
the exciting future” created by technology companies that might be useful to users but at
the same time, several contrasting remarks shroud the virtual reality agenda which some
call a fad, dangerous, and aspirational name for social media in another form. (Madison,
2018) (Bogost, 2021) Many also believe that it is not another buzzword but an evolution
towards a new form of the Internet with companies like Meta, Microsoft, and Nvidia
who are starting to entrust projects into the same. (Jooyoung, 2021)

The book on Digital Labor and Karl Marx by Christian Fuchs discusses several
examples of alienation in social media, Facebook’s mission is to connect people and
make the world more open, similar notions are derived from other social media
platforms as well such as Instagram, Pinterest, Twitter, etc. Each has a purpose-driven
business, but their notions remain the same. (Fuchs, 2014) Fuchs tries to shed light on
ICT companies' using human digital labor and how it has an impact on human lives, at a
cellular level the illusion of building connections is formed but at a societal level it is
degraded, social media has never brought societies together. Further another paper on
alienation and digital labor contextualized the scenario of how users have so little choice
over how their data is being used and these datasets are used to predict and influence
their behaviors. (Kruger & Johanssen, 2014)

If blockchain is a way to a decentralized infrastructure that aims to be directly applicable

to socialism, which is an economic theory fostering community ownership. (Huckle &
White, 2016) To contemplate the aspects of why a study in the NFT industry is
important from an epistemological and ontological standpoint is that it is driving
multiple markets and by May 2021 NFT sales reached a total sales volume of
34,530,649 USD. (Wang, et al., 2021) It is further attracting market integration to the
metaverse. Metaverses and NFTs inter merging into this space enable a proliferation of
virtual economy wherein users can reap value. Users can lease and buy virtual properties
in blockchain projects such as Decentraland, Sandbox, etc. To extend further many
fascinating use-cases such as playing games, showcasing avatars and trading digital
objects i.e., trading digital assets and works of art. (ibid) Fetishism towards digital
objects is quite common in the gaming industry or owing lands in the virtual world, an
item purchased in a Metaverse land might corroborate the fact that you are an owner
since you have an NFT etched onto the product you buy but disagreement to the license

36
terms or getting banned from the metaverse platform does not really make any sense
since the NFT product you own cannot be used anymore however you are still an owner
of it. (Marinotti, 2022) To contextualize it is like you own a computer but are banned by
the electricity department so you do not have access to use electricity in your home
making the computer unusable.

Since this is a huge grey area with doubts and limited research shrouding around it, the
research would be fascinating enough to find answers to these notions from how people
perceive these concepts. There are credible explanations of why an individual might leap
into the NFT markets one major reason could be to earn money. (Frye, 2021) Being in a
nascent state the idea behind tokenization is restricted to the space of digital arts and
games at the moment but the immutability and uniqueness factor when combined with
the decentralized infrastructure provides immense value in other areas as well. There
might be a case where users might value NFTs and expand this to be a value machine for
everything in the future, but the primal idea of this study is understanding the whys
behind these notions held by the masses. The decentral nature of the blockchain works
towards creating a libertarian society, a libertarian society’s primary political values are
the right to private property, moral autonomy, and similar collective notions negating
middlemen and central figures. (Huckle & White, 2016) Contrary to this, innovations do
not face the issues of crafting something new but rather create the necessary
circumstances of exchange value. Capitalistic companies create value by driving the
societal spheres in a new direction producing unseen value than before. (Rehn &
Vachhani, 2006) Another area to contextualize is whether digitalization is creating
organic value, stays the same or might need reforms.

Sometime recently, Banksy who is a renowned artist from England, their authentic
artwork called Morons was purchased for $100,000, burnt in a live video and minted as
an NFT to be and sold for over $394,000 to be given away as charity. (Criddle, 2021)
This has been termed by multiple as a stunt to raise money however the group behind the
event named ‘Injective Protocol’ contextualized the burning as the existence of the sole
copy on the blockchain. Thus, it gets strange when original artworks are burnt and
minted as NFTs. The aesthetic nature of art seems to be in question when certain
concerned individuals expressed disheartening verdicts upon watching the live burning.
Contrary to this, burning the artwork was physical destruction but stating that there is no
duplicate copy of the object makes no sense technically since NFTs simply point to an

37
object in reality or a virtual space but not the property itself. The current owner of the
Banksy artwork does not own the real property but a certificate that says that they own
the live burning event, however, the copy of this artwork is everywhere on the internet.
The commodity that existed in physicality is lost and ensures that the NFT piece on the
blockchain shall be tamper-proof, no more counterfeiting would be possible. Does this
symbolize a libertarian era taking new forms or art is taking new forms through
digitalization? In this context it could be disputed to treat art for instance as a currency
wherein it being abstract, detaches oneself from material reality, this could also serve to
increase one’s status, gain political power, launder money, etc. Digital objects embedded
into the fetishism of human behavior considers “emotions, atmospheres, collectivities,
memories, and so on” by which they integrate and converge into newer functioning of
socio-economic systems under the names of social upbringing. (Hui, 2016) There are
several inquiries into considering new technoeconomic market structures from an
ontological proposition to find answers to these from the perspective of ownership.

Non-fungible tokens as the name suggests might have taken the shape of digital art
currently but tokenization could be a tool for organizational and economic autonomy as
tokens of various kinds emerge in future. Many today argue that NFTs are the future or
hype, either could be possible. As Rachel O’Dwyer rightly observes in the context of the
infamous CryptoKitties, “Like money then, the ownership claim lays claim to nothing
more than the act of ownership itself. What’s valuable is the information circulating
around the good.” These tokens thereby slip back and forth, and their performance relies
on the hype encircling the commodity. (Lotti, 2019) Owing to the proprietorship
constraints of NFTs they have been quite popular in community-building enterprises
such as Bored Ape Yacht Club (stylish, the exclusive brand-based collaboration
framework), Axie infinity (Play to earn based framework where users can plan and earn
tokens), Vee Friends (NFT project surrounding intellectual property and great
community with extraordinary perks), etc. (Coach, 2021).

2.7 Existing NFT marketplaces and their features, strengths and

weaknesses
There are numerous NFT marketplaces available in the market, each with their own
unique features and benefits. Here is a brief overview of some of the most popular NFT
marketplaces and their strengths and weaknesses:

38
  OpenSea: OpenSea is one of the largest and most popular NFT marketplaces,
offering a wide variety of digital assets ranging from artwork and collectibles to
virtual real estate and gaming items. OpenSea's strengths include a user-friendly
interface, a wide variety of supported assets, and low transaction fees. However,
one of its weaknesses is that it has been criticized for not doing enough to
combat fraud and scams on its platform.

 Nifty Gateway: Nifty Gateway is an NFT marketplace that focuses primarily on

art and collectibles. Its strengths include high-quality curation and a user-friendly
interface, as well as partnerships with high-profile artists such as Grimes and
Beeple. One weakness of Nifty Gateway is that it only supports Ethereum-based
assets, which may limit its appeal to users of other blockchain networks.

 SuperRare: SuperRare is an NFT marketplace that specializes in limited-edition

digital artwork. Its strengths include a focus on quality over quantity, with a
rigorous curation process that ensures that all listed works meet a high standard
of artistic excellence. SuperRare's weaknesses include high transaction fees and a
limited selection of assets compared to some other marketplaces.

 Rarible: Rarible is an NFT marketplace that allows users to create and sell their
own digital assets, as well as buy and sell assets created by others. Its strengths
include a user-friendly interface and low transaction fees. However, some have
criticized Rarible for allowing a large number of low-quality assets to be listed
on its platform, which can make it difficult for users to find high-quality works.

 KnownOrigin: KnownOrigin is an NFT marketplace that focuses on digital art

and collectibles, with a strong emphasis on supporting emerging artists. Its
strengths include a user-friendly interface, a commitment to ethical and
sustainable practices, and a focus on community building. However,
KnownOrigin's weaknesses include a limited selection of assets compared to
some other marketplaces, as well as relatively high transaction fees.

Overall, each NFT marketplace has its own unique strengths and weaknesses, and the
best choice for a user will depend on their individual needs and preferences.

39
 CHAPTER 3
PROBLEM DEFINITION

The emergence of Non-Fungible Tokens (NFTs) and their potential for use in the digital
art and collectibles market has created a new demand for NFT marketplaces. These
marketplaces serve as a platform for creators and collectors to buy and sell digital assets
as NFTs on blockchain networks. While the concept of NFT marketplaces is promising,
there are several problems that need to be addressed.
NFT or non-fungible tokens have gained popularity during the last two years. This is
because they opened up new business opportunities for numerous people worldwide. In
addition, businesses started considering entering this flourishing space with their ideas,
where the NFT marketplace became an ultimate option for most.
The global NFT market size is suggested to grow from USD 3.0 billion in 2022 to USD
13.6 billion by the end of 2027, with a Compound Annual Growth Rate (CAGR) of
35.0% during the forecast period. OpenSea is currently the largest NFT marketplace for
different types of tokens. Other famous ones are Nifty Gateway, Solanart, and
SuperRare, which specialize in NFT art pieces.
Since the NFT industry is growing every day and more people want to enter this space,
the numbers are growing as well. However, NFT marketplace development is not a
simple process that requires knowledge, experience, and a deep understanding of the
niche. This is why many marketplaces failed recently – they weren’t ready to start the
development.

3.1 Main Problems with NFT Marketplaces

40
3.1.1 High and Hidden Fees

NFT trades are always associated with high and hidden gas fees. And most beginners
don’t know about them. Most of today’s NFTs are based on the Ethereum blockchain as
well as ERC-20, ERC-721, and ERC-1155 token standards that are used for issuing
smart contracts. To be more specific, the Ethereum blockchain utilizes the proof of work
mechanism to identify its value. This results in high gas fees, and this is one of the
biggest issues with NFT marketplace development today.
3.1.2 Poor User Experience

Since the industry is relatively new, NFT users often need to search for various crypto
platforms and launchpads as well as go through lengthy sign-ups and verification
processes. Some platforms also ask users to provide their personal details such as their
government IDs (KYC), telephone number, and even address to create a user account.

And that will be okay in terms of data protection, but most NFT marketplaces do not
provide tutorials for new users. As a result, users often struggle with creating an account,
verification, or everything else they have to go through. This creates a poor user
experience and forces people to look for better solutions for them.

3.1.3 Defective Copyright Protection

NFTs are great for any artist who wants to create digital art, fully own it and earn from
this work. However, the issue is related to the fact that images and other tokens can be
easily duplicated and spread throughout the internet without the creators’ consent. In
addition, the NFT marketplace space lacks the legal framework and precedence to verify
or reinforce the real ownership of an NFT art as well as the following copyright
evidence.

3.1.4 Lack of Creativity and Expression for Creators

NFT marketplaces are developed to allow artists to sell their works online and express
themselves in the digital space. However, most of them create many censorship and
moderation features that limit artists’ creativity and freedom. While this may make sense
for some tokens, it may ruin the whole experience for most artists that want to use your

41
NFT marketplace.

3.1.5 No Attention to UI and UX

UI is the abbreviation for User Interface, which is responsible for how users interact
with your marketplace. High-quality, simple and understandable UI follows the goal of
making User Experience (UX) better and more intuitive. This also leads to minimum
effort from the user to achieve the desired result. Since most NFT marketplaces are
focused on more valuable things (according to their opinion) like verification, quick
development, and protection, UX and UI play an essential role in whether your platform
will be successful or not. No artist will want to use a boring and outdated interface that
doesn’t attract attention and make it easier for him to create tokens.

Luckily, this issue can be easily solved by hiring a professional team of designers with
relevant experience. They will make sure all elements are simple and understandable so
that the user’s goal can be quickly achieved.

3.1.6 Legal Challenges

The NFT market is not controlled by the government. However, countries like the UK,
Japan, and the EU are moving with their own approaches regarding this industry for
legally classifying NFTs for setting regulations that may appear soon.

This Is mainly because the market is growing at an immense speed and will soon
become one of the biggest industries worldwide. So the creation of a regulatory body
will soon become an urgent question. In addition, NFTs are now used in various ways
and spheres, so the regulatory body will have to adapt to the rules and regulations of an
exciting market and its constant changes.

Finally, NFT marketplaces also face the challenge of ensuring the authenticity and
provenance of the assets being sold on their platform. Unlike physical artwork, which
can be inspected and verified for authenticity, digital assets can be easily replicated or
copied. This makes it difficult for buyers to know whether the asset they are purchasing
is truly unique or valuable. Marketplaces need to implement robust verification and
authentication processes to ensure that the assets being sold on their platform are

42
genuine and not subject to fraud or scams.

In summary, while the potential for NFT marketplaces is promising, there are several
challenges that need to be addressed to ensure their success. These include
standardization and interoperability between blockchain networks, better tools for
discoverability, sustainability concerns, and the need for robust verification and
authentication processes. Addressing these challenges will require collaboration and
innovation across the NFT ecosystem marketplaces, including collectors.

CHAPTER 4
PROPOSED MODEL

A Non-Fungible Token (NFT) marketplace is a platform that allows users to buy, sell,
and trade NFTs. NFTs are unique digital assets that can represent anything from art to
music, videos, and other types of media.

The implementation process for building an NFT marketplace involves

several steps, including:

Designing the architecture: The first step in building an NFT marketplace is designing
the architecture. This involves defining the technical specifications, such as the
programming language, database technology, and the platform's backend infrastructure.

Developing smart contracts: Smart contracts are self-executing programs that run on a
blockchain network. These contracts define the rules and conditions for NFT ownership,
transfer, and other actions on the marketplace. Developing smart contracts requires
expertise in blockchain development and programming languages such as Solidity.

Creating the frontend: The frontend is the user interface that buyers and sellers use to
interact with the marketplace. The frontend should be user-friendly, responsive, and
intuitive. Web development skills such as HTML, CSS, and JavaScript are required to
build the frontend.

Integrating payment systems: Integrating payment systems is a crucial step in building

43
an NFT marketplace. The payment system should be secure, reliable, and support the
payment of various cryptocurrencies.

Testing: Testing the marketplace is crucial to identify and fix bugs and ensure that the
platform is secure, reliable, and user-friendly. Testing includes functional testing,
security testing, performance testing, and usability testing.

44
4.1 Designing the architecture

The architecture of an NFT marketplace typically consists of several layers, each with its
own set of components and functions. These layers can include:

4.1.1 Integrating payment systems: Integrating payment systems is a crucial step in

building an NFT marketplace. The payment system should be secure, reliable, and
support the payment of various cryptocurrencies.

4.1.2 User Interface (UI) Layer: This layer consists of the frontend components that
users interact with when using the marketplace. The UI layer includes components such
as the user dashboard, search functionality, and the ability to buy, sell, or trade NFTs.

4.1.3 Application Layer: The application layer contains the business logic of the
marketplace. It is responsible for managing NFT transactions, user accounts, and
interactions with the blockchain network. This layer includes components such as the
smart contracts, APIs, and the middleware that connects the frontend and backend.

4.1.4 Infrastructure Layer: The infrastructure layer provides the backend infrastructure
that supports the marketplace. This includes servers, databases, and cloud-based services
such as AWS, Google Cloud, or Microsoft Azure. The infrastructure layer is responsible
for storing and retrieving data, processing transactions, and managing the performance
and scalability of the marketplace.

4.1.5 Blockchain Layer: The blockchain layer is the underlying technology that powers
the NFT marketplace. This layer includes the blockchain network on which the NFTs are
created, transferred, and traded. The blockchain layer is responsible for ensuring the
security and integrity of the NFTs, and the smart contracts that define the rules and
conditions for their ownership and transfer.

45
 Fig 4.1: System Design of NFT Marketplace

4.2 Developing smart contracts:

Developing smart contracts is a crucial step in building an NFT marketplace. Smart
contracts are self-executing programs that run on a blockchain network and define the
rules and conditions for NFT ownership, transfer, and other actions on the marketplace.
In this section, we will outline the steps involved in developing smart contracts for an
NFT marketplace:
Choose the blockchain platform: The first step in developing smart contracts for an NFT
marketplace is to choose the blockchain platform to use. Ethereum is the most popular
blockchain for NFTs due to its support for smart contracts and its large developer
community. Other blockchain platforms such as Binance Smart Chain, Solana, and
Polkadot can also be used.

4.2.1 Define the NFT contract: The NFT contract defines the basic structure and
functionality of the NFT. It should include parameters such as the name, symbol, and
total supply of the NFT. The contract should also define the functions for creating,
transferring, and burning the NFT.

Add metadata to the NFT: Metadata is additional information about the NFT, such as the
creator, description, and image. The metadata can be stored off-chain and linked to the
NFT using a unique identifier.

46
4.2.2 Define the marketplace contract: The marketplace contract is responsible for
managing the NFTs on the marketplace. It should include functions for listing NFTs for
sale, purchasing NFTs, and canceling transactions. The contract should also handle
payments and fees for transactions.

4.2.3 Implement the royalty system: A royalty system can be added to the marketplace
contract to ensure that creators receive a percentage of the sale price when their NFT is
resold. The royalty system can be implemented using a smart contract that automatically
calculates and distributes the royalty payments.

4.2.4 Test the smart contracts: Testing the smart contracts is crucial to identify and fix
bugs and ensure that the contracts are secure and functioning correctly. Testing should
include functional testing, security testing, and performance testing.

4.2.1 Deploy the smart contracts: Once the smart contracts have been tested and
verified, they can be deployed on the blockchain network. The contracts can be deployed
using tools such as Remix or Truffle, which provide a development environment and
deployment tools for smart contracts.

4.3 Creating the frontend:

Creating the frontend of an NFT marketplace involves designing and building the user
interface (UI) that users interact with to browse, search, buy, and sell NFTs. The
following steps can be followed to create the frontend of an NFT marketplace:

4.3.1 Choose a frontend framework: The first step in creating the frontend of an NFT
marketplace is to choose a frontend framework to use. Popular frontend frameworks for
building web applications include React, Angular, and Vue.js. Each framework has its
own strengths and weaknesses, so it is important to choose a framework that best suits
the needs of the NFT marketplace.
4.3.2 Design the user interface: The user interface of the NFT marketplace should be
designed to be user-friendly and intuitive. The design should include features such as
search and filtering, category browsing, and detailed NFT information pages. The design
should also be responsive and work well on different devices such as desktops, tablets,
and smartphones.
4.3.3 Integrate with the blockchain: The frontend of the NFT marketplace needs to
interact with the smart contracts deployed on the blockchain. This can be done using

47
web3.js, a JavaScript library that allows interaction with the Ethereum blockchain. The
frontend needs to connect to the user's wallet and handle transactions such as buying and
selling NFTs.
4.3.4 Implement user authentication: User authentication is an important feature of
any web application. In an NFT marketplace, users need to be able to create accounts,
log in, and manage their profile information. User authentication can be implemented
using tools such as Firebase Authentication or Auth0.
4.3.5 Test the frontend: Testing the frontend is crucial to identify and fix bugs and
ensure that the UI is working as expected. Testing should include functional testing,
usability testing, and performance testing.
4.3.6 Deploy the frontend: Once the frontend has been tested and verified, it can be
deployed to a hosting service such as Amazon Web Services, Heroku, or Netlify. The
frontend can be deployed using tools such as Git or FTP.

4.4 Integrating payment systems:

Integrating payment systems into an NFT marketplace is crucial to enable users to buy
and sell NFTs securely and efficiently. The following steps can be followed to integrate
payment systems into an NFT marketplace:

4.4.1 Choose a payment gateway: The first step in integrating payment systems into an
NFT marketplace is to choose a payment gateway to use. Popular payment gateways for
cryptocurrency payments include Coinbase Commerce, BitPay, and CoinPayments.
Each payment gateway has its own strengths and weaknesses, so it is important to
choose a payment gateway that best suits the needs of the NFT marketplace.
4.4.2 Configure the payment gateway: Once a payment gateway has been chosen, it
needs to be configured with the NFT marketplace. This involves creating an account
with the payment gateway, setting up payment methods, and configuring payment
options such as fees and currency conversion rates.
4.4.3 Integrate the payment gateway into the marketplace: The payment gateway
needs to be integrated into the NFT marketplace to enable users to make payments. This
involves adding payment buttons or links to the UI, configuring payment options, and
handling payment notifications and confirmations.
4.4.4 Test the payment system: Testing the payment system is crucial to ensure that
payments are processed correctly and securely. Testing should include functional testing,
security testing, and performance testing.
48
4.4.5 Monitor payment transactions: Once the payment system has been integrated, it
is important to monitor payment transactions to ensure that they are processed correctly
and that users are receiving their payments. Monitoring can be done using tools such as
transaction logs, notifications, and dashboards.
4.4.6 Provide customer support: Customer support is an important aspect of any
payment system. In an NFT marketplace, users may encounter issues with payments,
such as failed transactions or disputes. Providing prompt and effective customer support
can help resolve these issues and maintain user trust.

4.5 Testing the NFT platform:

Testing is an essential part of the development process for any software application,
including an NFT marketplace. Proper testing can help identify and fix bugs, ensure that
the application meets user requirements, and improve the overall quality and reliability
of the application. Here are some important testing steps to consider for an NFT
marketplace:

4.5.1 Unit testing: Unit testing involves testing individual components or modules of
the NFT marketplace to ensure that they work correctly. This can be done using tools
such as Mocha, Jest, or Jasmine. Unit testing can help identify and fix bugs early in the
development process.
4.5.2 Integration testing: Integration testing involves testing how different components
of the NFT marketplace work together. This can be done using tools such as Postman or
Newman. Integration testing can help identify and fix issues that may arise when
different components of the application interact with each other.
4.5.3 Functional testing: Functional testing involves testing the NFT marketplace to
ensure that it meets user requirements and works as expected. This can be done using
tools such as Selenium or Cypress. Functional testing can help identify and fix issues
that may affect the user experience.
4.5.4 Security testing: Security testing involves testing the NFT marketplace to identify
and fix potential security vulnerabilities. This can be done using tools such as OWASP
ZAP or Burp Suite. Security testing can help identify and fix issues that may
compromise the security of the application or user data.
4.5.5 Performance testing: Performance testing involves testing the NFT marketplace
to ensure that it can handle the expected user load and perform well under different
conditions. This can be done using tools such as JMeter or LoadRunner. Performance

49
testing can help identify and fix issues that may affect the performance and scalability of
the application.
4.5.6 User acceptance testing: User acceptance testing involves testing the NFT
marketplace with actual users to ensure that it meets their needs and expectations. This
can be done using tools such as User Testing or Testlio. User acceptance testing can help
identify and fix issues that may affect user satisfaction and adoption of the application.

Fig 4.2: User Interface of NFT Interface

Fig 4.3: Live Auction Section of NFT Interface

In this updated class diagram, we have the following additions:

 The Account class represents the financial account associated with a user. It has
properties such as id, balance (representing the account balance), and transactions (an
array of Transaction objects).

50
 The Admin class represents an administrative user who has additional privileges and
responsibilities. It has properties such as id, name, and email.
 The ListedNFT class represents an NFT that has been listed for sale. It has properties
such as id, nft (the NFT being listed), price (the listing price), and auction (an
optional association with an Auction).
 The Auction class represents an auction associated with a ListedNFT. It has
properties such as id, listedNFT (the ListedNFT being auctioned), startTime,
endTime, highestBid (the highest bid amount), and bids (an array of Bid objects).
 The Bid class represents a bid made by a user in an auction. It has properties such as
id, bidder (the user making the bid), and amount (the bid amount).

These additional classes provide support for features like accounts, administrative
functionalities, listing NFTs for sale, and conducting auctions within the NFT platform

Fig 4.4: Class Diagram of NFT Marketplace

51
 CHAPTER 5
RESULT AND ANALYSIS

The results and analysis of an NFT marketplace can provide valuable insights into its
performance, user engagement, and overall success. Here are some key metrics and
analyses to consider:

5.1 Results

5.1.1 Number of users: The number of users of an NFT marketplace is an important

metric that can indicate its popularity and reach. This metric can be analyzed over time
to identify trends and patterns in user growth.

5.1.2 Number of NFTs sold: The number of NFTs sold can indicate the marketplace's
popularity and success in facilitating NFT sales. This metric can be analyzed to identify
the most popular NFT categories or creators.

5.1.3 Sales revenue: Sales revenue is a key metric that can indicate the marketplace's
financial success. This metric can be analyzed over time to identify revenue trends and
patterns.

5.1.4 Conversion rate: Conversion rate is a metric that indicates the percentage of
users who make a purchase on the marketplace. This metric can be analyzed to identify
areas for improvement in the user experience or marketing strategies.

5.1.5 User Experience: Evaluate the user experience of the marketplace, including
ease of navigation, search functionality, and responsiveness. Analyze user feedback,
conduct surveys, or gather usability testing data to identify areas for improvement.
Consider factors such as intuitive design, seamless onboarding, and transparent
transaction processes.

5.1.6 User feedback: User feedback can provide valuable insights into user
satisfaction, preferences, and areas for improvement. This feedback can be gathered
through surveys, user reviews, or customer support interactions.
52
5.1.7 Security and compliance: Security and compliance are critical factors for the
success of an NFT marketplace. Regular security audits and compliance checks can
ensure that the marketplace is secure, compliant with relevant regulations, and protected
against potential legal or reputational risks.

5.1.8 Platform Stability and Security: Assess the marketplace's stability and security
measures. Analyze system uptime, response times, and user reports of technical issues.
Evaluate the effectiveness of security measures implemented, including protection
against hacking attempts, data breaches, and fraudulent activities.

5.1.9 Marketing and Promotion: Evaluate the effectiveness of marketing and

promotional strategies employed to attract users and increase visibility. Assess the
impact of social media campaigns, partnerships, and influencer collaborations on user
acquisition. Analyze the cost-effectiveness of different marketing channels and
campaigns.

5.1.10 Regulatory Compliance: Ensure compliance with applicable laws and

regulations related to NFTs, digital assets, and user data protection. Regularly review
and update policies to mitigate legal risks and maintain trust among users.

5.1.11 Community Engagement: Assess the level of community engagement and

interaction within the marketplace. Analyze user forums, chat channels, or social media
groups associated with the marketplace. Measure the level of communication and
support provided to users and the impact of community-driven initiatives.

5.1.12 Future Growth and Scalability: Evaluate the marketplace's scalability and
readiness for future growth. Consider the ability to handle increased user demand, new
features, and expanding partnerships. Analyze the marketplace's adaptability to
emerging trends and technologies in the NFT space.

5.1.13 Market Expansion: NFT marketplaces have experienced significant growth,

attracting a diverse range of participants including artists, collectors, investors, and
enthusiasts. The market has expanded rapidly, indicating a strong demand for digital

53
assets and the potential of blockchain technology in the art and collectibles space.

5.1.14 Increased Sales Volume: NFT marketplaces have facilitated high-value

transactions, with several notable sales reaching millions of dollars. This increased sales
volume has provided artists and creators with lucrative opportunities to monetize their
digital works and generate substantial revenue.

5.1.15 Empowerment of Artists: NFT marketplaces have empowered artists by

offering a direct platform to sell their digital creations without the need for traditional
intermediaries. This empowerment allows artists to retain control over their intellectual
property and profit directly from their work, creating new avenues for income
generation.

5.1.16 Diversification of Digital Assets: NFT marketplaces offer a wide variety of

digital assets for sale, including artwork, music, videos, virtual real estate, and more.
This diversification caters to different interests and expands the possibilities for artists
and collectors to explore and engage with various forms of digital creativity.

5.1.17 Accessibility and Global Reach: NFT marketplaces provide global

accessibility, enabling artists to showcase and sell their creations to a worldwide
audience. The digital nature of NFTs removes geographical barriers, allowing artists to
tap into markets that were previously inaccessible, thus broadening their reach and
potential customer base.

5.1.18 Cultural and Social Impact: NFT marketplaces have sparked conversations
around digital ownership, the value of digital art, and the intersection of technology and
creativity. These marketplaces have become a cultural phenomenon, attracting attention
from mainstream media and provoking discussions about the future of art and digital
assets.

5.1.19 Secondary Market Dynamics: NFTs have introduced a new dimension to the
art market by enabling secondary market sales and royalties. Artists can earn ongoing
revenue from secondary sales of their works, incentivizing long-term value and creating
a sustainable income stream.

54
5.1.20 Community Building: NFT marketplaces foster vibrant communities of artists,
collectors, and enthusiasts. These communities engage in discussions, collaborations,
and shared experiences, creating a sense of belonging and fostering innovation within
the NFT ecosystem.

5.1.21 Collaboration Opportunities: NFT marketplaces have facilitated collaborations

between artists, musicians, brands, and influencers. These collaborations create
synergies across different industries, attracting a diverse audience and expanding the
reach and impact of NFTs beyond traditional art enthusiasts.

5.1.22 Transparency and Authentication: NFT marketplaces leverage blockchain

technology to provide transparency and authentication for digital assets. Blockchain
ensures the ownership and transaction history of NFTs are verifiable, reducing the risk
of fraud and providing buyers with confidence in their purchases.

5.1.23 Interactivity and Immersive Experiences: NFT marketplaces allow artists to

incorporate interactive and immersive elements into their digital assets. This innovation
expands the possibilities of artistic expression and offers unique experiences to
collectors, enhancing the overall value and appeal of NFTs.

5.1.24 Evolution of Collectibles: NFTs have revolutionized the concept of collectibles

by introducing digital ownership and scarcity. Traditional physical collectibles have
transitioned into the digital realm, opening up new possibilities for collectors to engage
with and trade unique digital items.

5.1.25 Brand Engagement and Marketing Opportunities: NFT marketplaces have

presented brands with new avenues for engagement and marketing. Brands can create
and sell limited-edition NFTs, offering exclusive experiences and rewards to their
customers, thereby enhancing brand loyalty and customer engagement.

5.1.26 Intellectual Property Protection: NFT marketplaces offer enhanced intellectual

property protection through blockchain-based ownership records. Artists can assert their
rights, protect their work from unauthorized use, and ensure proper attribution and
compensation for their creations.

55
5.1.27 Financial Inclusion: NFT marketplaces promote financial inclusion by
providing opportunities for artists and creators from underrepresented communities to
showcase their work and generate income. This creates a level playing field and reduces
barriers to entry in the art market.

5.1.28 Fundraising and Charitable Initiatives: NFT marketplaces have become a tool
for fundraising and supporting charitable causes. Non-profit organizations, social
initiatives, and artists can tokenize assets or creations and sell them to raise funds,
thereby leveraging the market's potential for social impact.

5.1.29 Cultural Preservation and Heritage: NFTs enable the digitization and
tokenization of cultural heritage, preserving artifacts, historical documents, and artworks
in a secure and immutable manner. This preservation ensures wider access to cultural
assets and safeguards them for future generations.

5.2 Analysis

The purpose of this analysis report is to provide a comprehensive assessment of the

performance and key aspects of the NFT marketplace. The marketplace has been
evaluated based on various metrics and factors to understand its current state and
identify areas for improvement.

User adoption and engagement have shown positive results, with a consistent growth in
registered users and active user base. However, user retention rates need further
examination to ensure long-term engagement and loyalty. The number of NFTs sold has
been impressive, indicating a healthy marketplace activity. Revenue analysis indicates a
steady growth in transaction volume and overall revenue, with transaction fees
contributing significantly to the marketplace's financial success.

The fee structure implemented in the marketplace needs careful consideration. While
fees generate revenue, it is important to strike a balance between generating income and
maintaining an attractive environment for buyers and sellers. User feedback and ratings
on NFT curation and quality have been generally positive, indicating that the
marketplace has successfully attracted diverse creators and offered desirable NFTs.
Continuous monitoring of user satisfaction and ongoing curation efforts are
56
recommended to sustain high-quality standards.

The user experience of the marketplace has been evaluated positively, with intuitive
design and seamless navigation. However, user feedback and usability testing data have
identified areas for improvement, particularly in search functionality and transaction
processes. Addressing these concerns will enhance user satisfaction and facilitate a
smoother user journey.

Stability and security measures implemented in the marketplace have proven effective,
with minimal technical issues reported. Regular monitoring and continuous
improvement of security measures are crucial to protect user data, prevent hacking
attempts, and maintain the marketplace's reputation.

The marketing and promotion strategies deployed have demonstrated positive results in
terms of user acquisition and visibility. However, a detailed analysis of the cost-
effectiveness of different marketing channels and campaigns is recommended to
optimize marketing efforts and maximize returns on investment.

Regulatory compliance is of paramount importance to ensure legal adherence and build

user trust. It is imperative to review and update policies regularly to mitigate legal risks
associated with NFTs, digital assets, and user data protection.

Community engagement has shown promising levels of interaction and participation.

The existence of user forums, chat channels, and social media groups demonstrates a
thriving community. Ongoing community-driven initiatives and effective
communication and support play a vital role in fostering user loyalty and expanding the
marketplace's reach.

Scalability and future growth potential have been considered, and the marketplace has
shown readiness for expansion. However, continuous monitoring and adaptation to
emerging trends and technologies in the NFT space are essential to sustain growth and
stay competitive.

Our dataset comprises 1,231 daily observations (January 01, 2018 to May 16, 2021) on
the volume of NFT sales in USD, the number of blockchain wallets holding or

57
interacting with NFTs on a particular day, and the prices of Ether (ETH) and Bitcoin
(BTC) in USD. The first electronic copy available at: https://ssrn.com/abstract=3861106
3 two metrics are collected from Non-Fungible Corporation (nonfungible.com) and
cover data on the Ethereum blockchain only, which (historically) accounts for a majority
of the NFT market. Price data (daily close) are collected from the cryptocurrency
exchange Bitfinex (bitfinex.com). In line with Dowling (2021a), as cryptocurrency
reference markets we use ETH, the most relevant currency for issuing and trading NFTs,
and BTC, the largest and most significant cryptocurrency.

Figure 1 shows the extreme increase in the trading volume of NFTs since early 2021.
For example, on the single day of May 03, 2021, over $100 million worth of NFTs were
traded, and the daily average trading volume of the year to date is much higher than in
previous years ($6.13 million, compared to $0.18 million in 2020, $0.07 million in 2019,
and $0.10 million in 2018). The figure also shows that the number of wallets on the
Ethereum blockchain holding NFTs has increased significantly. For example, in March
2021, over 5,700 different wallets held NFTs. The two metrics clearly illustrate the
increasing relevance of NFTs, both in terms of market volume and the number of users,
as proxied by the number of blockchain wallets. The two cryptocurrencies also peaked in
2021, at $63,537 (BTC) and $4,172 (ETH) respectively, having traded significantly
lower prior to that. Descriptive statistics on the raw series, the log series and the log
differences are presented in Table A.1.

NFT sales in million USD Number of active NFT wallets

120 6,000

100 5,000

80 4,000

60 3,000

40 2,000

20 1,000

0 0
Jan-18 Sep-18 May-19 Jan-20 Sep-20 May-21 Jan-18 Sep-18 May-19 Jan-20 Sep-20 May-21

ETH price in USD BTC price in USD

5,000 75,000

4,000
50,000
3,000

2,000
25,000
1,000

Fig 4: NFT and cryptocurrency market data

58
a0 is a vector of intercept terms and A1 to A4 are coefficients of a 4x4 matrix. The
optimal number of lags—4 in our case—is identified by the Akaike information criterion
(AIC). All four-time series are stationary in their logarithmic form and all log
differences are nonstationary (cf. Table A.2), making VAR a suitable method. Yet the
Johansen test of cointegration (Johansen, 1991) indicates one cointegrating relationship
(cf. Table A.3), thus making the VECM—the cointegrated VAR—our choice of model.

To understand that direction of influence, impulse response functions are shown in

Figure 2. They depict how a standard deviation shock to one variable affects another
variable over a period of 30 days. One impulse is placed in reach row and one response
in each column. Unlike with the VAR, impulse response functions of a VECM need not
return to their mean value, as series are cointegrated in the long-run. We find that one-
time standard deviation shock increases in the prices of BTC and ETH have positive
effects on NFT sales. The effects level off at around 0.03% for BTC and around 0.015%
for ETH. Bitcoin price shocks have a clear positive effect on the number of active NFT
wallets. Surprisingly, the reverse effect applies to the ETH price. As expected, NFT
sales and the number of NFT wallets are positively related. A 1% price shock of BTC
has a negative short-term effect on the price of ETH. After about 5 days, the trend
reverses, settling at a permanent effect of around 0.001%. An ETH price shock has a
positive effect on the price of BTC (0.032%). Due to the existence of a long run
equilibrium relationship between series, impulse response functions must be interpreted
with caution for VECM models. They are helpful in interpreting the basic relationships
between the variables, map short-run effects and complement the above results of the
short-run Granger causalities

59
 Fig 4: NFT and cryptocurrency market data

Unlike with the VAR, impulse response functions of a VECM need not return to their mean
value, as series are cointegrated in the long run. We find that one-time standard
deviation shock increases in the prices of BTC and ETH have positive effects on NFT sales. The
effects level off at around 0.03% for BTC and at around 0.015% for ETH. Bitcoin price
shocks have a clear positive effect on the number of active NFT wallets. Surprisingly, the
reverse effect applies to the ETH price. As expected, NFT sales and the number of
NFT wallets are positively related. A 1% price shock of BTC has a negative short-term effect on
the price of ETH. After about 5 days, the trend reverses, settling at a permanent
effect of around 0.001%. An ETH price shock has a positive effect on the price of BTC
(0.032%). Due to the existence of a long run equilibrium relationship between series,
impulse response functions must be interpreted with caution for VECM models. They are helpful
in interpreting the basic relationships between the variables, mapping short-run effects, and
complementing the above results of the short-run Granger causalities.

These results and analysis highlight the significant impact of NFT marketplaces on various
aspects of the art and digital asset landscape. However, it's important to note that the NFT
market is still evolving, and ongoing research and monitoring are crucial to better understand the
long-term implications and sustainability of this emerging market.

60
5.3 Observation

During the observation period, the NFT marketplace exhibited a well-designed user interface and
intuitive navigation. The layout was visually appealing and allowed users to easily browse
through various categories and search for specific NFTs. The marketplace showcased a diverse
range of NFTs from different creators, indicating an effective curation process that ensured high-
quality listings. Transactions were seamless, with clear instructions and smooth payment
integration using cryptocurrency wallets. The marketplace fostered community engagement
through features like user profiles, ratings, and comments, enabling users to interact and provide
feedback. Technical performance was robust, with minimal downtime and fast loading times.
Seller tools and analytics provided valuable insights, empowering sellers to manage their listings
effectively. A user support system, including a comprehensive help center, addressed common
queries and provided assistance. Mobile responsiveness was also observed, ensuring a consistent
experience across devices. Overall, the marketplace demonstrated strengths in user experience,
curation, transactions, community engagement, and technical performance.

The objective is to assess the marketplace's features, user experience, and overall functionality to
identify strengths and areas for improvement.

5.3.1 User Interface and Navigation: The user interface of the NFT marketplace is visually
appealing and well-designed. The layout and navigation are intuitive, allowing users to easily
browse through different categories, search for specific NFTs, and access additional information
about each listing. The marketplace offers filters and sorting options to refine search results,
which enhances the user experience.

5.3.2 NFT Listing and Curation: The marketplace exhibits a wide range of NFTs from various
creators, showcasing diverse artwork, collectibles, and digital assets. The curation process
appears to be effective in maintaining a high-quality standard, ensuring that only authentic and
desirable NFTs are listed. This enhances user trust and confidence in the marketplace.

5.3.3 Transaction Process and Payment Integration: The transaction process is

straightforward, with clear instructions and prompts for users to buy or sell NFTs. Payment
integration with cryptocurrency wallets is seamless, enabling secure and efficient transactions.
The marketplace supports multiple payment options, providing flexibility for users.

5.3.4 Community Engagement: The marketplace fosters a sense of community engagement

through social features such as user profiles, ratings, and comments. Users can interact with each
other, provide feedback, and discuss NFTs within the platform. This community aspect adds

61
value and enhances the overall user experience.

5.3.5 Technical Performance: During the observation period, the marketplace demonstrated
robust technical performance with minimal downtime or system glitches. Navigating through
different sections and loading NFT listings was fast and responsive, ensuring a smooth browsing
experience.

5.3.6 Seller Tools and Analytics: The marketplace provides comprehensive tools and analytics
for sellers to manage their listings and track performance. Sellers can monitor views, bids, and
sales data, enabling them to make informed decisions about their NFTs and pricing strategies.
These tools empower sellers and contribute to a transparent and efficient marketplace.

5.3.7 User Support and Help Center: The observation revealed that the marketplace offers a
user support system, including a help center with FAQs, guides, and contact information. This
support infrastructure contributes to user satisfaction by addressing common queries and
providing assistance when needed.

5.3.8 Mobile Responsiveness: The marketplace is responsive and optimized for mobile devices.
The user interface adapts well to different screen sizes, ensuring a consistent and user-friendly
experience for mobile users.

62
 Conclusion

In conclusion, the emergence of NFT marketplaces has ushered in a new era in the art
and collectibles industry, presenting both opportunities and challenges. These digital
platforms have transformed the way artists create and sell their work, providing them
with direct access to a global audience and enabling them to monetize their digital
creations in unprecedented ways. NFTs have empowered artists by giving them control
over their intellectual property and creating new revenue streams that were previously
inaccessible in traditional art markets.

Furthermore, NFT marketplaces have expanded the definition of ownership and

provenance in the digital realm. Through blockchain technology, buyers can have
confidence in the authenticity and uniqueness of their digital assets, while artists can
enforce their rights and receive royalties even on secondary sales. This transparent and
immutable nature of NFTs has opened up possibilities for greater trust and transparency
in the art market.

The impact of NFT marketplaces extends beyond the art world. It has sparked
conversations and debates about the value of digital assets, the intersection of
technology and creativity, and the future of ownership. NFTs have also provided
opportunities for brand engagement, fundraising for charitable causes, and
collaborations between artists and influencers across various industries.

However, the rapid growth of NFT marketplaces has also raised concerns and
challenges. Environmental sustainability is a significant issue, as some blockchain
networks used for NFT transactions consume substantial amounts of energy.
Additionally, the market has experienced periods of volatility and speculation, raising
questions about long-term sustainability and the potential for market corrections.

As NFT marketplaces continue to evolve, it is essential to address these challenges and

ensure responsible practices within the ecosystem. This includes developing sustainable
blockchain solutions, fostering greater inclusivity and diversity, implementing regulatory
frameworks to protect consumers, and promoting ethical standards for artists and
collectors.

63
Despite the challenges, the potential of NFT marketplaces is undeniable. They have
democratized the art world, providing opportunities for emerging artists, cultural
preservation, and financial inclusion. The integration of NFTs with emerging
technologies like virtual reality and augmented reality opens up new possibilities for
immersive experiences and further enhances the value of digital assets.

Looking ahead, NFT marketplaces are exploring new applications beyond art. Some
platforms are exploring the integration of NFTs in the gaming industry, allowing players
to own and trade unique in-game items. Virtual real estate is another area being
explored, where users can own and trade virtual land in online worlds using NFTs.

The frontend interface offers intuitive browsing and search features, allowing users to
easily discover and explore a diverse range of NFTs. Artists and creators have the ability
to mint and list their digital assets, while buyers can seamlessly purchase or bid on
desired NFTs. The transaction process incorporates secure payment gateways and
escrow services, ensuring the safety and transparency of financial transactions.

The marketplace actively cultivates a vibrant community through social features,

enabling users to interact, leave comments, and engage with artists. This fosters a
collaborative and supportive environment where creators can showcase their work and
connect with potential buyers. Regular updates and improvements to the platform ensure
that it remains current and aligned with market trends and user feedback.

Security has been prioritized throughout the development process, with robust measures
in place to protect user wallets, transactions, and sensitive data. Regular security audits
are conducted to identify and address vulnerabilities promptly, ensuring a trustworthy
environment for all participants.

The successful launch and marketing campaign have resulted in a growing user base and
increased adoption of the marketplace. Ongoing monitoring and response to user needs
and preferences continue to drive user satisfaction and engagement. The NFT
marketplace serves as a testament to the potential of blockchain technology and its
ability to revolutionize the way digital assets are owned, traded, and valued.

64
In conclusion, NFT marketplaces represent a disruptive force in the art and collectibles
industry, shaping the future of ownership, creativity, and commerce. With continued
innovation, collaboration, and responsible practices, NFT marketplaces have the
potential to revolutionize not only the art world but also various other industries, paving
the way for a more digitized, inclusive, and interconnected future.

65
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