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Definitions for NFT Noobs

Good Morning! Did you ever read an article about crypto or NFTs or Bitcoin or some other cryptocurrency, and every sentence had some new jargon whose meaning was a mystery to you? Its pretty rough when every sentence contains a new word, and the definition of that word uses some other new word! Well, welcome to the world of crypto!


This page is intended to provide simple, easy-to-understand definitions of the words we use every day in the crypto and NFT space. We try to use easily understandable language in these definitions. So, if you or someone you know is new to crypto and NFTs, or is a Boomer, tell 'em about this page! Everyone is welcome!


We wrote this page because as we were learning about NFTs and crypto, we were unsure of the meanings of many of these words. So this is just a cleaned-up version of our personal understanding. The idea is, anyone new to the crypto and NFT space will need to learn these same things.


Of course, we are not financial advisors or tax experts, so please remember that all of this is just our opinion. About crypto stuff. On the internet. As they always say, do your own research.


We thank the community at Social Octopus Society for inspiring us to share this page. Disclosure: we own a Social Octopus NFT, because we wanted to learn more about making our own digital art and NFTs. Other than those CryptoKitties we bought back in 2017, the Octopus was our first NFT!


On to the definitions!!




DEFINITIONS - GENERAL CRYPTO STUFF


token - A digital item whose ownership contract resides on a blockchain. It could be a ticket, a picture, an animation file, something that can be represented by data in digital file on a computer.


NFT (Non-Fungible Token) - A special type of token. Because its ownership contract is stored on a blockchain, it can be treated as a unique item in the world owned by a specific crypto wallet, and it can be said to be non-fungible (not exchangeable for another identical item). A dollar bill or a Bitcoin is a fungible item - either can be exchanged for another dollar or Bitcoin. An original piece of art is non-fungible - there is only one.


blockchain - a computerized ledger whose entries are open to viewing by all participants at any time, and whose entries are validated by multiple participants who use computer programs to confirm the entries are correct and valid. Different blockchains use different methods to validate their entries.


cryptocurrency - A form of digital currency that is exchanged like money when performing transactions on a blockchain. Three well-known cryptocurrencies are Bitcoin, Ether, and Solana.


open-source - a description of software whose source code is publically available for use by others and for inspection by others. In the context of cryptocurrency and NFT's, open source is powerful because it enables a community to trust the operation of the software because community members can see it and know what it is doing. It also enables fixes to be implemented in a public way when malicious actors become involved.


Bitcoin - The OG cryptocurrency, created by the mysterious entity Satoshi Nakamoto, existing on the Bitcoin blockchain, and documented in a white paper published in 2008. Bitcoin is known by its proponents as being a good store of value. Many think of it as "digital gold." Bitcoin uses a transaction validation method know as Proof-of-Work, whose benefit is the highly decentralized nature of its validation process. This highly decentralized process makes Bitcoin the benchmark for trustless transactions.


OG - Slang for the early well-known version of something; could be a person or an item. Or a cryptocurrency. OG stands for Original Gangster.


decentralized - A characteristic of some blockchains, whereby the validation method is ensured by multiple independent participants whose independent actions ensure that the entries in the blockchain are correct, and are able to be trusted by all. The level of decentralization can vary for different cryptocurrencies or over time as participants change their activities.


trustless - The ability to execute transactions where the participants involved have no means to trust the other participants. For example, the participants on the Bitcoin blockchain are confident of their transactions because the blockchain does not require their trust. So, it is trustless.


Ether - Another cryptocurrency, envisioned by the genius Vitalik Buterin in 2013, existing on the Ethereum blockchain, and documented in a 2013 whitepaper. Ether is known by its proponents as a "smart contract" cryptocurrency, because complex conditions and rules can be programmed in to the transactions on the Ethereum blockchain. Ether uses a transaction validation method known as Proof-of-Stake.


Solana - Another cryptocurrency, developed by Anatoly Yakovenko in the "crypto winter" of 2017-18, existing on the Solana blockchain, and documented in a 2017 whitepaper. Solana is known by its proponents to enable fast and inexpensive transactions, something which they say gives it an advantage over Ether. Solana uses a transaction validation method called Proof-of-History in addition to Proof-of-Stake.


PoW (Proof-of-Work) - A transaction validation method (famously used by the Bitcoin blockchain) which requires validators to solve increasingly difficult mathematical exercises in a quest to confirm the next entry into the blockchain. Multiple decentralized "miners" participate in the activity, in parallel, trying to be the first to solve the problem. Because of the high difficulty and effort required, and the decentralized nature of the miners, the likelihood of malicious activity is reduced, and the PoW blockchain is considered highly secure. Because of the parallel nature and high usage of mining computers, the electrical energy usage of a PoW blockchain is high.


PoS (Proof-of-Stake) - A validation method used by blockchain participants (most famously by the Ethereum blockchain) to confirm the next entry in the blockchain. Stakeholders - whose stake in the currency determines their voting power - vote to determine the next entry. The level of decentralization of the stakeholders is a factor in determining how decentralized the blockchain validation is. Energy usage is reduced compared to Proof-of-Work blockchains.


PoH (Proof-of-History) - A validation method (notably used by the Solana blockchain) which adds timestamps to the validation process, enabling a Proof-of-Stake blockchain to reach consensus much faster and much more efficiently than before. Timestamps on each stakeholder's messages enable them to be created in parallel and without concern for sequencing until after they have been received. Because of these characteristics, the Proof-of-History method may exhibit much higher throughput and much lower energy consumption than other methods.



DEFINITIONS RELATED TO USERS OF THE BLOCKCHAINS


wallet - A digital entity, on your computer or on a piece of hardware attached to your computer, which contains the unique address (known as the "public key") and unique secret passcode ("private key") where your cryptocurrency is assigned. If you are the only holder of the keys, you are in control of the crypto assigned to this wallet. Bitcoin developer Andreas Antonopoulos coined the phrase "not your keys, not your coins," meant as a warning that an online wallet holding your crypto is the one actually in control of your crypto. Note that wallets can hold more than cryptocurrency - they can also hold digital tokens such as NFTs.


non-custodial wallet - A type of software wallet which enables you to hold the private key to the wallet, thus giving you full control of the crypto inside. The "non-custodial" terminology is confusing to many people - it refers to the developer of the wallet having no custody of your data, thus "non-custodial."


hardware wallet - A type of wallet that lives on a USB or similar device, so it can be disconnected from your computer in order to increase security for the hodler.


public key - The publicly known string of letters and numbers which help to identify your wallet. Often you might provide your public key to some entity so they can send you cryptocurrency or an NFT. Do not lose your public key. Write it down and store it in a safe place.


private key - The SECRET string of letters and numbers associated with your public key. The public and private keys are a pair that work together to access your wallet. Never give your private key to anyone, unless you want them to have whats in your wallet. Reputable participants will never - never - ask for your private key. Do not lose your private key - no one else has it. Write it down and store it in a safe place.


seed phrase - When you create an account for a wallet, in addition to your public and private keys, you will get a human-readable seed phrase made up of several words in specific order. Typically this phrase can be used to recover your keys if you lose them. Treat this seed phrase like you would treat your private key. Never give your seed phrase to anyone, unless you want them to have whats in your wallet. Reputable participants will never - never - ask for your seed phrase. Do not lose your seed phrase - no one else has it. Write it down and store it in a safe place.


exchange - How do you get cryptocurrency into your wallet? You need the help of some entity who can exchange your cash (say in dollars) for some cryptocurrency (say Bitcoin). An exchange will do this for you, for a fee of course. You create an account on the exchange, send them money, and they can give you some cryptocurrency in exchange for your money, at the current exchange rate. It is possible for you to hold your cryptocurrency in this exchange account, and trade among dollars and different types of cryptocurrency. However, a wallet is used to securely hold your cryptocurrency with your own keys, and also to hold tokens like NFTs. So you might send cryptocurrency between your exchange account and your wallet in either direction depending on what you are trying to do.



DEFINITIONS RELATED TO BUYING, SELLING, AND CREATING NFTS


collection - A group of NFTs which somehow have a similar theme or connection, and which are minted as a specific group with a known maximum number of NFTs in the group.


mint - The action of creating an NFT and placing its ownership contract on the blockchain. This is only done once per NFT.


secondary market - After an NFT is minted, it is owned by someone. Subsequent sales of that NFT will be in the secondary market. An NFT may change hands multiple times.


floor price - For a collection of NFTs, the floor price at any given time is the price of the cheapest NFT in the collection at that time.


utility - Many NFTs are creative works whose artful nature is in itself great. But they may have other useful properties, or utilities. For example, some NFTs may give the holder entry into a special online group, or entry into a live event, or serve some purpose in a game, or work as a social media avatar.


minting software - software used to create a collection of NFTs from component files, usually thought of as layers in graphics files, by randomly assigning different layers to a file to build the NFT. The minting software also creates a companion "json file" to go along with each NFT graphics file. The json file is important because it holds the "metadata" which describes the attributes of the parts of the NFT.


json file - Contains the metadata describing the attributes of the NFT. For example, in a collection of NFTs, one json file might contain "sky": "blue" for one NFT with a blue sky, and "sky": "rainbow" for another NFT with a multi-color sky. Users can examine the metadata to understand what is included in a given NFT, and also the rarity of the NFT when compared to others in the collection. Note: the metadata is not stored on the blockchain, rather the ownership contract on the blockchain points to the metadata, which is "off-chain."


mint price - Because the minting process is typically random in terms of what attributes the NFT will contain, a user does not typically known what the minted NFT will look like, or how rare it will be, until after it is minted. This makes the minting process exciting, and it also encourages the creator to keep the price down because after all, many of the NFTs will not be rare. So the mint price is often low and attainable for many.


whitelist - in order too build enthusiasm and community for an NFT collection, the creator may build a whitelist to offer a great deal (perhaps a reduced price) on an early minting of the NFT. Whitelist participants are often enthusiastic community members or insiders who support the project.


That's all we have for now. If you think of some other definitions needed, please feel free to send us a message! Thanks for reading!


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