NFT marketplace is an online platform that allows non-fungible tokens (NFTs) to be purchased, sold, swapped, and even created (minted). The NFT marketplace provides access to various NFT assets, such as memes, profile photos, avatars, in-game objects, trade cards, music, art, fashion, video clips, etc.
NFT's popularity as a valuable asset within the DeFi sector is still on the rise because it gives an alternative to investing in the crypto market in fun and engaging way to participate in the crypto market through its use in web3 gaming and the metaverse, drawing new users and collectors.
However, just as with cryptocurrencies, you may buy and store them on a custodial or non-custodial exchange; the same is true with NFTs, which can be purchased on a custodial or non-custodial marketplace. In other words, the NFT marketplace can be decentralized (non-custodial) or centralized (custodial).
Basic understanding of the NFT Marketplace
NFTs are created using blockchain technology and assigned to users without using any intermediary services through smart contract technology. The marketplace platform uses ERC721 and ERC1155 standards to validate that NFT collectors control their selling assets. As a result, the NFT marketplace is crucial in linking a buyer and a seller with a unique item.
To enter the marketplace, buyers and sellers must have a crypto wallet with enough assets to fund the transaction that works with the blockchain network supporting the NFTs they desire. Therefore, the crypto wallet is the foundation of every blockchain marketplace. In other words, the NFT marketplace is a crypto wallet that handles the transaction and storage of NFTs. Similar to how both custodial and non-custodial wallets may be used to keep any crypto assets, including NFTs, different NFTs can be acquired on both custodial and non-custodial NFT marketplaces.
So, how do they differ? What are the advantages of using any of the two NFT marketplaces? Which one is best for you? Let's find out!
What is a Custodial Marketplace?
Like a custodial crypto wallet, a custodial NFT marketplace is a third-party platform that handles the transaction and management of NFT assets during a purchase process. Since a crypto wallet must hold the NFT, the marketplace controls and monitors your wallet's private key and maintains custody of your NFTs.
To illustrate how a custodial marketplace works, imagine you want to buy an NFT by bidding in an auction. You must submit your money to the NFT platform with the amount needed to cover the cost of the NFT, including the transaction charge and any platform expenses. The same rule applies to selling NFTs; you place the asset in the platform's custody until a buyer connects.
As a result, a custodial marketplace oversees trade transactions and transfers assets to the appropriate parties (the buyer receives their NFT, while the seller receives cryptocurrency funding).
The custodial NFT marketplace makes it simple for anyone, particularly beginners, to participate in the NFT ecosystem by trusting the management of their private keys in the hands of a custodian. Furthermore, because the platform gives appropriate support to its users whenever there is a trading difficulty, there are typically few to no errors or lost margins.
Pros and Cons of a Custodial Marketplace
- You cannot lose your access to the marketplace because the third-party platform is responsible for protecting your private key or mnemonic. As a result, you cannot misplace your keys or lose access because all you need to do is log in to your account.
- A support system is always available to assist with any difficulties experienced, making this marketplace a more acceptable platform for newcomers.
- Custodial marketplaces are straightforward, offering an easy way to purchase NFTs.
- KYC (know your customer) is always required before trading on the marketplace, with users giving personal information.
- Giving a third party access to your private keys may risk your asset's security because they are vulnerable to hacks and malicious attempts.
- Because a third party controls your account, they have total authority over your NFT collections and can freeze them anytime.
What is a Non-custodial Marketplace?
A non-custodial NFT marketplace is a decentralized platform that allows users (buyers and sellers) to conduct direct trades without using an intermediary. In a non-custodial marketplace, trades are conducted anonymously, with users maintaining complete control over the transaction and their wallet at all times. Unlike a custodial marketplace, which controls and safeguards the user's private keys, a non-custodial marketplace has no access to the user's private keys, making the asset's safety the user's responsibility.
To enter a non-custodial marketplace, you need a self-custody wallet with the marketplace's blockchain token that will be connected to the marketplace. Assume you're purchasing an NFT collection on an Ethereum-based marketplace; you'll need ETH in your crypto-compatible crypto wallet to pay for the NFT and other transaction fees. So, if you bid on an NFT in an auction, the cryptocurrency in your wallet will be locked up in the bid offer until it is accepted or rejected by the seller or until you cancel your bid, giving you complete control over your funds and the transaction.
Either as a creator or collector, a non-custodial marketplace allows the entire ownership and management of your assets at all times. However, with great power comes great responsibility. If you use a non-custodial marketplace, you must secure your private keys from unwanted access, as losing them will result in losing access to the marketplace and your NFTs. As a result, it is unsuitable for beginners because losing the private key equals losing access to the marketplace and your NFTs.
Pros and Cons of a Non-custodial Marketplace
- Non-custodial allows you complete control over the transaction and the flexibility to choose the type of transaction cost.
- Since the platform cannot access the user's private key because it is linked to the wallet, a user can move his asset at any time, whether or not the marketplace is active.
- No personal information or documentation is required to access a non-custodial marketplace.
- Since they are typically presented with more difficult-to-understand interfaces, new users or beginners generally find them more daunting than traditional marketplaces.
- Any mistake encountered could expose you to theft or cause you to lose your money or NFTs unexpectedly.
Custodial or Non-custodial: Which is Best for You?
Choosing a marketplace is determined by your needs and how you value access and privacy. A non-custodial marketplace may be suitable if you're familiar with cryptocurrency and NFTs and want some control over your NFT trading. However, if you are a newbie or cannot handle the intricacy of the non-custodial market, trading in a custodial market is your best bet.
Knowing which marketplace to use is critical, as the platform you use will determine your success in trading or minting NFTs. Each platform, however, has different qualities that set it apart.
Want the best of both custodial and non-custodial features? Try Cwallet!
Cwallet is a unique platform that lets users use a custodial and non-custodial wallet within the same app.
Cwallet offers an easy-to-use interface that makes creating and managing several accounts simple. You can see and manage your NFT collection with an inbuilt NFT gallery, seeing everything at a glance; thus, it is an ideal tool for managing your NFTs.
Cwallet lets you deposit, withdraw, and swap any cryptocurrency quickly and cheaply. NFT tokens can be exchanged for any of the 800+ cryptocurrencies available on Cwallet. Cwallet has the lowest transaction costs for cross-chain and "on-chain" swaps.
Finally, you may transfer and view your NFT on Cwallet regardless of the marketplace you choose, whether custodial or non-custodial. Learn more about transferring and viewing NFT on Cwallet.
Get started with Cwallet today!