Learn the key terms to become conversant with NFTs & crypto
With interest booming in the world of NFTs (nonfungible tokens) and crypto, the Digital Culture Works team thought it would be helpful to list some of the key terms to know so that you can better understand what’s going on.
Below are some key terms in the NFT field, listed in alphabetical order. Have some additional words or phrases you’d like to see added? Please email them to us — thank you!
Bitcoin is the world’s most well-known cryptocurrency. Currently its main utility is as an investment vehicle for stored value, although people and companies are starting to use it as a secure peer-to-peer network to facilitate instant payments. There are no physical bitcoins, only balances kept on a public ledger that anyone can access. Bitcoin bills itself as a new kind of open source P2P money.
The blockchain is a distributed digital ledger that stores data across a global network, making it publicly verifiable and unchangeable rather than centralized or controlled by a single entity. Blockchain is the technology used by cryptocurrencies to allow secure transactions to take place. Because the Bitcoin blockchain is a public record of all transactions accessible by anyone at any time, it is not truly anonymous. Instead, the transactions in the blockchain are encrypted with public key cryptography that masks the real identities of the individuals behind the transactions.
A coin is a digital medium of exchange in the form cryptocurrency. It can be held as a form of stored wealth, such as Bitcoin, or can be used to transfer value from one person to another. In contrast, a token (see below) is a cryptocurrency that is primarily used to access services on a specific network or as a record on a blockchain that proves ownership of a digital asset.
Cryptocurrency is decentralized digital money that’s usually based on blockchain technology and secured by cryptography, which makes it nearly impossible to counterfeit or steal. Funds are usually kept in a cryptocurrency wallet (see below).
A cryptocurrency exchange (or digital currency exchange) is a business that allows customers to trade cryptocurrencies for other currencies or assets, such as conventional money or other digital currencies. Exchanges often accept credit card payments, wire transfers or other forms of payment.
Dai is a digital currency issued by MakerDAO, an Ethereum-based protocol, that anyone can use for trading or transactions. Unlike cryptocurrencies that tend to be more volatile, Dai is a stablecoin cryptocurrency that aims to keep its value as close to one U.S. dollar as possible through an automated system of smart contracts on the Ethereum blockchain. More than 400 apps and services have integrated Dai, including wallets, DeFi platforms and games.
A dApp (or Dapp) is any decentralized software application that runs on a peer-to-peer decentralized network or the blockchain.
DeFi is shorthand for decentralized finance. It’s a concept in which financial products are available on a public decentralized blockchain network, making them open to anyone to use rather than going through a middleman such as a traditional financial institution. DeFi enables buyers, sellers, lenders and borrowers to interact in a peer-to-peer fashion or via a strictly software-based approach.
A Dex or DEX, or decentralized exchange, is a type of exchange where users can trade cryptocurrencies directly with each other. A Dex enables direct peer-to-peer cryptocurrency transactions to take place online securely and without the need for an intermediary. Similar to a stock exchange, a Dex is governed by smart contracts on the Ethereum blockchain that enforces rules and executes trades.
Ether is Ethereum’s native cryptocurrency. Bidders on NFT marketplaces often purchase digital goods using ether, often abbreviated as eth. Transaction fees may differ by computational complexity, bandwidth use and storage needs.
Ethereum is the second most popular cryptocurency after Bitcoin. At the same time, Ethereum refers to the platform that enables ether to be used for secure transactions on the blockchain.
Fiat is a sports car. No, wait, that’s not right. It’s any form of currency that a government backs as legal tender. This includes money in circulation such as paper money or coins. You probably don’t need to know this unless you listen to podcasts about crypto.
A gas fee refers to the amount you pay to conduct any transaction on the Ethereum network, including purchases and minting of NFTs. Gas fees are indicated in a denomination of ether called gwei, which is the smallest unit of ether. The fees are determined based on the amount of computational effort it will take to execute certain operations.
A hash is a fixed-length alphanumeric string of randomized letters and numbers used to represent words, messages and data of any length. In the blockchain world, any data stored on a blockchain may be called a hash.
The Metaverse is a collective virtual shared space, created by the convergence of virtually enhanced physical reality and physically persistent virtual space, including the sum of all virtual worlds, augmented reality and the Internet. More colloquially, metaverses are immersive virtual universes that offer users a set of unique experiences. The characters in Ready Play One were interacting within a Metaverse. Some people have begun buying NFTs with an eye toward tricking out their space within a virtual world or carrying it with them within a virtual experience. In the metaverse of Decentraland, you can order Dominos pizza and get it delivered to you in real life. The term was coined by author Neal Stephenson in his 1992 science fiction book Snow Crash.
Minting refers to creating an NFT and having it hosted in a smart contract on the blockchain.
A non-fungible token (NFT) is a digital asset that encompasses a wide range of tangible and intangible items, from collectible sports cards to virtual real estate and well beyond. Every NFT contains distinguishing information distinct from any other NFT, making ownership easily verifiable.
An NFT marketplace is a website where you can buy, sell and trade anything that may be considered an NFT, that is, any file that’s tied to a cryptocurrency token.
Non-fungible refers to stuff that’s not being mutually interchangeable. While one U.S. dollar can be exchanged for any other dollar (and is thus fungible), assets such as paintings or rare books are non-fungible because each unit is a distinctive work with inherently different qualities.
An oracle is a bit of code that provides smart contracts with external information by serving as a bridge between blockchains and external information that resides on outside networks. Developers need to know this, but regular folks don’t.
A smart contract refers to a self-executing software program or transaction protocol that runs autonomously and aims to automatically execute, enforce or document legally relevant events and actions according to the terms of an agreement between buyer and seller. Smart contracts help you exchange money, property, shares or anything of value in a transparent, conflict-free way while avoiding the services of a middleman or external legal system.
In the context of the cryptocurrency industry and NFTs, a token is a record on a blockchain that gives its owner the right to a certain amount of digital currency or the right to do certain things with the asset. Think of it as a digital certificate of authenticity. Often a token is used to faciliate a transaction. On the blockchain, tokens are typically represented as long lines of randomized letters and numbers called hash. The value of a token rises or falls based on the demand for the services that the token grants or the asset that it represents.
A wallet, or cryptocurrency wallet, serves as a blockchain-secured bank account for your cryptocurrencies and, increasingly, as a safe encrypted place to hold your NFT assets, such as digital art.
Your wallet address is the hash — or randomized string of letters and numbers — that you enter to send or receive cryptocurrency, cryptocurrency tokens or NFTs. Cryptocurrency wallets enable you to send and receive digital assets securely. Think of your wallet addresses as your bank account numbers and routing numbers/SWIFT codes all rolled into one long string of characters.