In 2021, the volume of NFT trading increased approximately 400x and reached $13 billion. It is expected that the industry will be $82 billion worth by 2026, keeping an annual growth of about 40%. Hence, NFTs are one of the fastest-growing markets in the world. Trading platforms like OpenSea, Rarible, Mintable, Foundation, and Binance NFT take the most out of the growth. This article will tell you about the functioning of these platforms and the development of an auction platform for NFTs.
What is NFT?
NFT stands for a non-fungible token, a digital identifier on blockchain that functions as an identification code. This code might also be a digital passport that proves the uniqueness and authenticity of virtual assets like digital art, photographs, videos, texts, GIFs, etc.
Every NFT token is unique and non-fungible. In other words, non-fungible tokens are impossible to split into minor parts (like a dollar is divided into cents and bitcoins into Satoshi). NFTs cannot be exchangers for other NFTs equivalently nor used as a payment method (money) for trading operations.
For example, CryptoPunk 5822 is an NFT that proves the ownership of the image of an azure-skinned punk with a blue bandana. Thus, the owner of the NFT has the original image, and all others are just copies. For example, the Mona Liza original picture is in Louvre and costs millions of dollars, while other photos and pictures are worthless copies.
CryptoPunk 5822 NFT 32.75 million dollars worth.
What is an NFT auction platform?
An NFT auction is an internet platform that allows the trading of non-fungible tokens for a fixed price or on an auction like eBay. These platforms enable creating NFTs and linking an image, photo, animation, or video to them following putting it for sale. Minting an NFT is done with smart contracts.
The smart contract function scheme for an NFT auction platform. Source
How does an NFT auction platform function?
The users’ part (frontend) of an NFT auction is similar to typical internet shops that allow starting auctions. The only substantial difference is the necessity of creating a cryptocurrency wallet to store NFTs. In everything else, NFTs auction platforms have no significant differences from eBay; a user has to sign up before being allowed to create a lot or use the listing to buy some NFTs.
The interface of a popular NFT auction platform — OpenSea.
The significant differences are on the backend since NFT auctions require smart contracts, and the data is logged in the blockchain network to guarantee transparency and security for all deals. Despite the operation logic being simple, implementing its backend is not.
The difficulties are often encountered in the following:
- Smart contracts. When an NFT is created or transferred, a smart contract is launched that mints the NFT or moves it from one user to another. This type of transaction is significantly more complex than transferring bitcoins or ether tokes. Furthermore, it costs 150 dollars on the Ethereum blockchain. The difficulty is that a smart contract must be super reliable and secure since most cryptocurrency thefts are smart contract hacks.
- Cryptocurrency wallets. All NFT transactions are processed in the blockchain; hence buying or selling them is only possible using Enjin, Metamask, Trust Wallet, or another cryptocurrency wallet. If you plan to develop an NFT auction platform, consider adding NFT-supporting wallets.
- The auction mechanism. Obviously, developing an NFT auction involves implementing an auction mechanism. This can be an English, Dutch, or Yankee auction (we will explain the difference below). Furthermore, the auction must be automatic, secure, and reliable. Anyone is allowed to intervene in the process. Also, the mechanism should be straightforward so that the users unfamiliar with the auctions and cryptocurrency intuitively navigate through the processes.
- Gas fee. Every NFT operation is logged in the blockchain and charges a translation fee. The size of the price floats, and the processing speed of a transaction depends on the size of the fee; the higher the payment, the faster the processing. If you add to your NFT auction the option of an independent fee selection, then if two users buy an NFT simultaneously, the receiver would be the one who pays the higher fee since the processing is faster.
Main NFT auction types
Popular auction mechanism. Source
This is a classical type of auction where the initial price is defined (the acceptable minimum for the supplier), then the bids are made. The higher bid wins. If no one offers the initial price, the lot is canceled, and the minimum will be manually or automatically lowered to put the supply back for sales. This mechanism is the most common, and most online auctions offer it.
Scandinavian auction. A popular auction variation, where the supplier puts the lot for sale at a minimal price, and every bid increases the cost up to one minimum. Participation in the auction is not free. This type of auction is expected when the supplier wants to sell the product rapidly and for the best price.
First-price auction. The minimal, current, and maximum cost is announced for this auction. The participants make secret bids once, and the higher bid wins.
Penny auction. This is similar to the Scandinavian mechanism, yet the participants pay a small non-refundable fee to make a bid. Finally, the last participant bids and gives the total amount of the offer. The auction is free if not considering the fee bid fee.
Vickrey auction (second-price auction). This is a variation of the English auction, where the winner pays the amount the participant before them named.
Other types. There are also many auctions, for instance, Yankee, Japan, combo, sealed bid, etc. The niche and the target audience will help define the auction mechanism. For example, eBay employs the second-price auction, which the customers appreciate, yet the suppliers disapprove of it since the income is lesser.
Industries to employ NFTs
Promising industries to launch an NFT auction platform. Source.
Currently, non-fungible tokens help trade digital artworks, from memes to actual paintings. For example, OpenSea offers images, photos, GIFs, videos, music, and texts. However, art is not the only industry suitable for NFTs. They can also help the game industry, namely trading: characters (CryptoKitties, Gala Games), music (Niftler), manga (KLKTN), tweets (Valuables), jewelry (4K), real estate (Mintable), AR/VR spaces (Metaverses), etc.
The prime thing is to create an NFT auction for a specific type of asset. To provide you with an example, if you require a platform for sports digital cards, you will need a typical online shop; the backend will provide minting, storing, and moving NFTs. It is relatively simple. If you want to launch a platform for real estate, you will need a Zillow or Trulia analog that is integrable with MLS, government registers of real estate, etc.
And this works for any niche, and regardless it is online learning, investment projects, security, video games, advertisements, and tickets.
The primary function of an NFT auction
To successfully develop an NFT platform
, you will establish three user roles (seller, buyer, and administrator); each one will have its interface design and functions.
Administration panel functions
- Administration panel. Here the administrator supervises the trading platform, trading volume, number of users, the income, fees, errors, etc.
- Author (seller) management. This window allows tracing the NFT creators, managing their accounts (add, freeze, delete), and communicating in a chat.
- Buyer management. The administration can manage the buyers (NFT collectors) here. The functionality is equal to the author management tab.
- Auction and bid adjustment. It helps the administration to adjust the auction mechanism and its components. For example, the administrators can set one bid option for everyone or offer the authors to select one auction mechanism.
- Fee management. This administration panel allows tracing the payments, requisites, fees, and transactions on your NFT auction.
Buyer panel functions
Seller panel functions
- Registration. The buyer can sign up if they enter their email, mobile phone number, etc. After the registration, they can buy tokens on your NFT auction platform. However, viewing the lots does not require having an account.
- Signing up via social networks. You can make the registration process faster if you allow your users to sign up via an existing Facebook, Twitter, or Google account. Implementing this function will enhance the user experience.
- Search engine and filters. The search engine must be straightforward and intuitive for the users to understand how to search for lots and participate in the auctions. The best solution is to develop a navigation system similar to Amazon, Walmart, eBay, AliExpress, or other popular online shops.
- Favorites. This function allows the users to add the NFTs they like to a particular list to track the changes (starting the auction, new bids, ending, etc.).
- Participating in the auction. This is a unique function of NFT platforms that allows the users to join in NFT auctions.
- Registration. The author can create an NFT and put it for sale only if they have an account with all required data included like: name, address, email, mobile number, nickname, etc.
- Adding NFTs. Adding NFTs. This function allows the creators to develop new NFTs and link content to them (images, photos, music, GIFs, etc.), add a description, and then put the NFT for sale after defining the min price and setting a timer for the start and end of trades.
- Auction statistics. This function allows the authors to track all their auctions in one window.
NFT auction monetization
NFT marketplace has a wide range of monetization solutions. Depending on the income structure that fits your business requirements, you might choose one or develop a flexible model that will combine several monetization models.
Here are several popular monetization solutions for NFT auctions:
- Charging fees on sellers. Each time the authors sell their NFTs on your platform, they are charged a fee. This solution is standard for most NFT marketplaces.
- Charging fees for listing items. According to this model, you will charge a non-refundable fee for listing an item. Furthermore, the payment will not depend on whether the item was sold; the creator pays anyway.
- Membership deposit. It is a recurring subscription that grants access to the platform’s functions. For instance, it allows participating in auctions and provides advanced analytics.
- Advertisements. It is truly the most popular monetization model.
Developing an NFT auction platform
Developing a platform for NFT auctions is hard work; hence it would be wise to ask an experienced blockchain developer
for help, i.e., Merehead. Since 2015, our company has helped implement projects in DeFi, Blockchain, and NFT. We do everything, from straightforward smart contracts to exchanges and cryptocurrency wallets.
These are some of our cases in the blockchain development:
BigFan - it is a platform for selling sports NFTs using ERC-1155. All tokens are issued in cooperation with sports teams and players or their official representatives.
Vleppo - this BaaS platform provides freelancers and enterprises with a solution to manage and transfer their digital assets, create smart contracts with integrated escrow features, and take a loan with cryptocurrency collateral.
Wide Wine - a logistic blockchain platform that helps trace the supply chains of wine and verify the authenticity.
Coinbird/CEX - cryptocurrency exchange with high-level security and safety. Furthermore, it supports operations with fiat currencies.
AltcoinsHub - it is a P2P exchange that helps to trade all popular cryptocurrencies. Study more cases.
Step 1: Initiating the project
The first step is always defining the concept, namely understanding what NFT platform you want to develop. Since the clearer the idea, the easier it is to create.
Step 2: Designing and developing
UX/UI design. When you have defined the vivid concept, technology stack, and functions, you may start developing the NFT auction design. It is a must that the design is straightforward and intuitive yet appealing to your target audience. Hence, before launching the coding, research your target audience through focus groups and surveys.
Writing the code. When the design is ready, the programmers start to code it. They work on the backend and frontend and the development of smart contracts.
This is the technological stack for the backend of an NFT auction:
The technological stack for the frontend of an NFT auction:
- Blockchain: Ethereum, Binance Smart Chain.
- Token standard: ERC721, ERC1155, BEP-721, BEP-1155.
- Smart contracts: Ethereum Virtual Machine, BSC Virtual Machine.
- Frameworks: Spring, Symfony, Flask.
- Programming languages: Java, PHP, Python.
- SQL database: MySQL, PostgreSQL, MariaDB, MS SQL, Oracle.
- NoSQL database: MongoDB, Cassandra, DynamoDB.
- Search engines: Apache Solr, Elasticsearch.
- DevOps: GitLab CI, TeamCity, GoCD Jenkins, WS CodeBuild, Terraform.
- Cache: Redis, Memcached.
Step 3: Testing the product
- Web languages: Angular.JS, React.JS, Backbone, and Ember.
- Mobile languages: Java, Kotlin for Android, and Swift for iOS.
- Architecture: MVVM for Android and MVC, MVP, MVVM, and VIPER for iOS.
- IDE: Android Studio and Xcode for iOS.
- SDK: Android SDK and iOS SDK.
At the next stage of development, the QA team runs several cycles of testing the written code to ensure there are no bugs. Functionality, usability, performance, reliability, and security testing are also performed for all scenarios of platform use.
Step 4: Deploying the product
When the NFT platform has been thoroughly tested, it should be deployed in the cloud or on local servers. Train the staff and set up the technical support service, and plan the project's future development.
How much does it cost to develop an NFT auction platform?