As you step into the vibrant and ever-evolving world of Non-Fungible Tokens (NFTs), you’re likely to encounter an array of unique terms and phrases. These terminologies might seem cryptic at first, but they are the building blocks of understanding this novel digital landscape. As your friendly guide, we aim to decode this NFT terminology, helping you grasp the essential lingo you’ll need on your journey.
Non-Fungible Tokens (NFTs)
We’ll start with the star of the show, Non-Fungible Tokens (NFTs). In the simplest terms, an NFT is a type of digital asset. What sets NFTs apart is their uniqueness; each NFT has a distinct value and specific information that can’t be replicated. This non-fungibility means that unlike cryptocurrencies like Bitcoin, NFTs aren’t interchangeable on a like-for-like basis.
Blockchain
NFTs exist on a blockchain, a decentralized and distributed digital ledger that records transactions across multiple computers. Ethereum is currently the most popular blockchain for NFTs due to its smart contract functionality, but other blockchains like Binance Smart Chain and Flow also support NFTs.
Smart Contracts
In the NFT universe, you’ll frequently hear the term ‘smart contract.’ A smart contract is a self-executing contract where the terms of the agreement are written into code. They automate transactions and give NFTs their unique properties, like ensuring an artist receives royalties each time their NFT is resold.
Minting
Creating an NFT is known as ‘minting.’ When you mint an NFT, you’re essentially creating a unique digital item and uploading it onto the blockchain. The process of minting transforms your digital art, music, virtual real estate, or any other form of content into a tokenized asset that can be bought, sold, and held just like physical property.
Gas Fees
A frequent term in the NFT glossary is ‘gas fees.’ In the Ethereum network, gas fees are the costs incurred for transactions, including minting and trading NFTs. They fluctuate based on network congestion; the more people transacting at the same time, the higher the gas fee.
Wallets and Addresses
As you navigate the NFT landscape, you’ll need a digital wallet. Wallets store your NFTs and cryptocurrencies, much like a physical wallet stores your cash and cards. Each wallet has an associated public ‘address,’ a unique identifier that allows others to send you tokens or NFTs. Some popular wallets used in the NFT space include MetaMask, Trust Wallet, and Rainbow.
NFT Marketplaces
NFT Marketplaces are platforms where you can buy, sell, or trade NFTs. Each marketplace varies in its focus, with some catering to specific types of NFTs such as art, music, or virtual real estate. Prominent marketplaces include OpenSea, Rarible, Foundation, and NBA Top Shot.
Proof of Ownership and Provenance
When you buy an NFT, you gain proof of ownership recorded on the blockchain. This is akin to having a deed for a house. Provenance refers to the record of ownership, and in the context of NFTs, it tracks the history of the token from the moment it was minted to the present.
Royalties
The world of NFTs has attracted creators worldwide due to its promise of perpetual royalties. With each subsequent sale of their NFT, creators can receive a percentage of the transaction, providing a continuous stream of income from their original work. This concept of ‘royalties’ is a significant shift from traditional digital content sales, where the creator often gets paid only once.
Wallet Connect and Web3 Browsers
Wallet Connect is a protocol for connecting decentralized applications (DApps) to mobile wallets using QR code scanning or deep linking. A user can interact securely with any DApp from their mobile phone, making Wallet Connect wallets a safer choice compared to desktop browsers. Web3 browsers, on the other hand, enable interaction with decentralized networks and smart contracts.
Decentralized Finance (DeFi)
Decentralized Finance (DeFi) often intersects with the NFT space. DeFi is a blockchain-based form of finance that doesn’t rely on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments. Instead, DeFi utilizes smart contracts on blockchains.
Fungible vs. Non-Fungible
To fully appreciate the concept of ‘non-fungible’ tokens, it’s helpful to understand their fungible counterparts. In the digital currency world, ‘fungible’ tokens are interchangeable with each other. For instance, one Bitcoin is equivalent to another Bitcoin. On the contrary, ‘non-fungible’ tokens are unique and not interchangeable, making each NFT distinct.
CryptoArt and Virtual Real Estate
NFTs have breathed new life into the digital art scene, giving birth to the term ‘CryptoArt.’ These are digital artworks tokenized as NFTs. Similarly, ‘virtual real estate’ refers to parcels of land within virtual worlds or metaverses. These parcels are often tokenized as NFTs and bought, sold, or rented like physical property.
On-Chain and Off-Chain
In the blockchain context, ‘on-chain’ refers to transactions that occur on the blockchain and are publicly recorded on the ledger. In contrast, ‘off-chain’ transactions occur outside of the blockchain network and aren’t publicly recorded.
Fractional Ownership
Another exciting concept brought about by NFTs is ‘fractional ownership.’ It allows an expensive NFT to be split into smaller, more affordable pieces, enabling multiple people to invest in and co-own a single high-value NFT.
Your Journey Into NFTs
In conclusion, the NFT world is teeming with unique terminologies that can seem complex but are vital to understand as you navigate this emerging ecosystem. By familiarizing yourself with these terms, you’ll be well-equipped to explore the potential of NFTs and participate in the ongoing digital revolution.
