NFT Glossary: Every Buzzword in One Place
NFTs are, for many, the most disruptive trend since Bitcoin. Not only are they abstract, but there are dozens of buzzwords used in this new space. With jargon such as “metaverse” and “P2E,” they almost sound like code names.
If you’re feeling confused by all these new words, this glossary will help you catch up. Here is the most-used terminology in the NFT community.
Scroll through the whole page or click to jump down to the alphabetical group:
Airdrop (or Drop)
An airdrop is a crypto marketing strategy that works like a giveaway, but with a few differences. It’s a tactic that rewards users who meet certain conditions, such as following their media channels, buying their token or joining a limited waitlist.
Airdrops typically offer variable rewards and involve upfront investing. For example:
- If the NFT collection has its own token, you need to own an NFT for the coin airdrop
In crypto exchanges, you first buy the coin and lock it until the end of the airdrop. Your reward depends on how much and how early you locked.
If there’s no investment, it’s a giveaway.
Alpha refers to future announcements kept in secret to avoid price manipulation. Like insider information. Users who somehow find “alpha” can invest early and profit the most.
Often, the NFT community are divided into those who own the NFT and those who don’t (but who just follow the project). NFT owners are the first to receive announcements and aren’t allowed to sell those secrets. The alpha nearly guarantees a positive return of investment.
Blockchain is a digital database type secured by a digital infrastructure known as distributed ledger technology (DLT). Essentially, it’s a way for digital information to be stored and distributed, but not copied.
- The block contains all the information about a transaction (amount, date, sender). It creates a unique “hash” (like a transaction ID) from this data.
- The chain means that every block has its hash and the hash from the last block. Hashing is automatic, so you don’t need to know anything about the previous transaction.
- A ledger is a financial database to record transactions.
- Distributed means that all users (referred to as “the network”) have an updated copy of the database. So you don’t rely on a single entity to verify the records.
In practice, this means:
- Blockchains accept new data and don’t allow changing previous blocks.
- Blockchains create consensus among users who don’t need to trust each other.
- No one can force blockchains to accept an entry if the network disagrees.
Dive Deeper: Blockchain Explained: The Ultimate Peer-to-Peer Network
Blue-chip investments have proven to perform well in the long term regardless of market conditions. According to public opinion, blue-chip NFTs are stable and consistently appreciated over time. Examples of these include the Bored Apes Yacht Club, Crypto Punks or The Sandbox LAND.
Blue-chip collections have three things in common:
- an engaged community
- an active creative team
- a reward system
NFT owners find more benefits in holding the asset than by selling it, either due to popularity, passive income or ownership perks.
Consensus models are systems designed to guarantee reliability and trust. Traditionally, parties delegated consensus to neutral third parties (banks, escrow companies). Blockchains, however, use computer algorithms and peer-to-peer networks to validate transactions.
Common consensus models:
- Proof of work (PoW). Based on the amount of computational work done.
- Proof of stake (PoS) and all its variations. Based on the amount of participation (by locking a token amount).
To choose who validates a block, there is a random and a voting component. To get the most voting power in PoW, you have to have the highest computing power in the network. To get the most voting power in PoS, you have to “stake” (lock) the most tokens for the longest time possible. And because it’s random, you get the highest chance (though never guaranteed) to win.
Cross-chain interoperability allows you to access all independent blockchains. It’s the equivalent of “blockchain bridges,” except they work for any network. And without this feature, the metaverse potential would be quite limited.
As an example, suppose your Web3 wallet has $100 on the ERC-20 chain. But you want to buy a $100 NFT on a marketplace built only on the Binance Smart Chain (BSC). You cannot access your $100 balance on BSC, so instead, you need an app to bridge your $100 from ERC-20 to BSC.
Cross-chain networks (like Avalanche, AVAX) solve this problem. If you want to spend money on an AVAX dApp, you can use the balance from Avalanche Mainnet, ERC-20 chain, BSC, or any other. Because of this advantage, cross-chain platforms have high demand among dApp developers.
Cryptocurrency and Fiat Currency
Cryptocurrency is a digital money system backed by blockchain technology. This separates it from traditional virtual currency, as there is no central authority regulating transactions. Instead, cryptocurrencies rely on computer algorithms and users to validate transactions.
Originally, cryptocurrencies like Bitcoin were synonymous with payment methods. Now that there are thousands of cryptos with different purposes, it has become a broad term to group all forms of blockchain-backed tokens.
Fiat currency, by contrast, is legal tender with value backed by government-issued currencies. USD, for example, is fiat currency, whether it comes in the form of coins, bills or numbers on a screen. On trading platforms, “crypto-fiat” means you can exchange cryptocurrencies for fiat currencies like USD, EUR, GBP, etc.
When the value of a cryptocurrency is backed by government-issued currency, it gives place to stablecoins like Tether (USDT). Thus, 1 USDT always equals $1, with an error margin under 1%.
Decentralized Application (dApp) and Smart Contracts
Decentralized Applications (dApps) are applications built and run on decentralized blockchains that support smart contracts. Developers choose dApps because they offer better privacy, scalability, and cost-efficiency. While apps store data on the dev servers, dApps store it on the blockchain.
Not to be confused with decentralized programs (smart contracts), apps are lines of code designed to interact with the user, while programs self-execute in the background. Thus, smart contracts are programs coded by dApp developers to automatically execute agreements between buyers and sellers.
However, all smart contracts require Ethereum tokens to run (also known as gas fees).
Here is a dApp marketplace so you know what they look like. Aave, for example, is a financial service platform. Whether you want to borrow or lend crypto, each service executes with a smart contract after you pay the gas fee and confirm.
Degen (AKA degenerate, and can be a noun or a verb) is an investing style associated with high risk, speculation, and betting. Degens may buy NFTs because they expect others to believe they will become more valuable. They’re not trading NFTs but, rather, opinions.
The term has negative connotations, as the trader relies on luck more than risk management. When Degens “ape in,” it means:
- Buying NFTs because the collection has become popular
- Doing what masses do without doing your own research (DYOR)
- Fear of missing out (FOMO)
Degens don’t invest in blue-chip NFTs, only in the (riskier) collections with the highest reward.
Diamond (or Paper) Hands
“Hands” refer to the way investors hold their NFTs.
Diamond hands (AKA HODling, which can be used more or less the way “holding” is used) means you don’t sell until you make a profit, even if it takes years.
Paper hands mean you’ll panic-sell if the collection depreciates too much.
While similar, flipping and paper hands aren’t the same. Paper hands is a reaction to price decrease, while flipping is a short-term exit strategy. Flippers may hold the NFT if it doesn’t reach the ideal price. When collections have lots of diamond-hand owners, you can expect the floor price to be high and stable.
Digital Wallet and Crypto Wallet
Digital wallets are money storage systems backed by software providers (such as banks, payment processors, and trading platforms). You create a digital wallet by signing up with these providers with your personal information and password. You then use that information to access the wallet and manage your balance.
Crypto wallets are cryptographic private keys (often provided as a seed phrase of 12 words). Depending on who keeps the key, there can be:
- Custodial wallets. Another party has your key, such as a crypto exchange. These wallets are easy to use and have low fees, but the other party is responsible for your wallet security.
- Non-custodial wallets. You hold the private keys and, therefore, only you can access the wallet.
Like digital wallets, crypto wallets rely on payment software, except that this software is backed by a blockchain (like Bitcoin). The way you create this wallet depends on the type, and they all require a username and password to access.
Both types can store crypto either online or offline. These are known as hot wallets (more convenient) and cold wallets (more secure).
Ethereum and ERC-20
Ethereum is the open-source blockchain that first introduced smart contracts and dApps, hence why so many developers still build on it. Even though newer blockchains are cheaper and faster, there are over 3,000 dApps on Ethereum.
As for tokenomics, Ethereum is a cryptocurrency backed, originally, by the proof-of-work consensus algorithm. Since the 2.0 update, ETH uses the proof-of-stake algorithm, which has improved its security and speed.
ERC-20 tokens are smart contracts created for simplicity and interoperability. This means developers can use smart contracts from other apps, which makes development easier. For traders, interoperability means you can trade ERC-20 tokens from Ethereum dApps. For example:
- The Binance exchange is a centralized platform that offers about 500 hand-picked tokens.
- The Ethereum dApp Uniswap (UNI) is a decentralized exchange (DEX) that allows trading any of the 1000s of ERC-20 tokens.
Check this source to see the types of ETH tokens. Ethereum NFTs, for example, are ERC-721 tokens.
Flipping (or Flippening)
Similar to day trading, flipping involves buying assets cheap and selling them for a higher price weeks (or sometimes hours) later. Flippers disregard long-term price potential. If they expect a pump-and-dump, they’ll buy it.
Flippers reinvest in more expensive NFTs to increase profits. Or if the risk is too high, they can split among smaller collections. Either way, it’s misleading trading activity and makes the collection appear more valuable.
The lowest NFT price in the collection, excluding bid offers, is the floor price. When someone buys the lowest NFT, it becomes unavailable until the new owner relists it at a new price. Then the floor price will update to the next cheapest asset.
Since flippers buy at floor prices, you have the best chance of selling when you sell at that price or below. You can price infinitely higher and still sell the NFT, but unless it’s very rare, people will want the lower ones first.
- High floor prices increase the perceived value and promote long-term ownership.
- Low floor collections don’t attract as many buyers, and there are more people trying to get rid of the NFTs. The more owners and items involved, the more critical it is.
Dive Deeper: How to Promote Your NFTs the Right Way
Gas fees are equivalent to “smart contract activation fees.” They power the programs that make dApps work.
Just like Bitcoin has miners to validate transactions, Ethereum has computers to run smart contracts. It’s called “gas” because applications can’t run without these fees. It’s a payment to compensate for the time and computing power needed to validate transactions.
Gas fees change due to supply and demand. As for Ethereum, prices may be as high as 10X the same day because of the trading volume. And if the infrastructure isn’t enough, gas fees can rise exponentially.
Outside Ethereum, gas fees are called transaction fees.
Generative art is a common technology used to create large NFT collections. Rather than designing every NFT yourself, the creator can use a computer program to randomize trait combinations. All PFPs use it for the following reasons:
- They increase perceived value. All NFTs are by definition unique. But if they also look different (and cool), others may want to pay more for it.
- They can be pre-minted. You can buy before the NFT is created, which adds an element of surprise. You go to the official collection website, click on “Generate Mint,” pay for the NFT, and it will immediately randomize your NFT picture.
- They appeal to collectors. On generative-art PFPs, all traits have different rarities. Every time you generate a new NFT, you also have a chance of generating rare traits. The more you generate, the better the chances.
You can recognize generative art because all NFTs of the collection have the same theme (but different traits). On Bored Ape Yacht Club, all apes have the same design style. But they may have different colors and accessories (made using generative art).
Dive Deeper: How to Find Legit NFT Artists & Work With Them Effectively
The Initial Game Offering shares a similar purpose as ICOs (Initial Coin Offerings) and IDOs (Initial DEX Offering, where DEX stands for Decentralized Exchanges). Whether it’s a game, coin or DEX, this is the first opportunity for the public to invest in the project.
You can find upcoming IGOs on launchpads like Seedify and Immutable X.
If a game studio wants to add blockchain features, they’ll probably create NFTs during the IGO. Players who own these assets will gain in-game benefits. And as the studio becomes more popular, the collection floor price will also increase.
In-game NFTs make P2E possible.
Dive Deeper: Leverage Blockchain With an Initial Coin Offering (ICO)
Layer-2 and Layer-1 Blockchains
Layer 1 and 2 are synonyms for infrastructure and functionality layers.
Layer-1 blockchains (like Bitcoin, Ethereum, Cardano) offer the fundamental tech for basic features like transaction security, consensus algorithms, or smart contracts. Each blockchain has its infrastructure, processing speed, security, costs, and so on.
Layer-2 blockchains are built on top of the existing one (L1) to improve these features, primarily transaction speed and cost reduction. For example:
- Lightning Network is an L2 of Bitcoin
- Polygon is an L2 of Ethereum
- Hydra is an L2 of Cardano
Mind that while there can be unlimited L2s, there is only one Layer-1 blockchain. For example, Ethereum has Polygon, Matic, Raiden, Loopring, and a dozen other L2s, each with its own token. And the sum of all this is what we call the Ethereum blockchain ecosystem.
More and more NFT marketplaces are adding Layer 2 blockchains because they improve efficiency both for swap platforms and NFT game studios.
Dive Deeper: 5 Best NFT Marketplaces for Beginners in 2023
Similar to the Internet, the Metaverse is a 3D interactable virtual space generated by computers. Users can socialize, work, learn, and play just like in online video games. We say an app belongs to the metaverse when it has real value that’s compatible with other (decentralized) apps.
If you earn tokens in a P2E game:
- You can convert them to other crypto or fiat currency
- You can swap coins and transfer money to another P2E game
Thus, any decentralized app (dApp) belongs to the metaverse because you only need a Web3 wallet to make tradeable assets from widely different apps. Whatever tokens you have, they are usable on any other metaverse app. For example, you could play Axie Infinity to earn AXS tokens, and then use them on The Sandbox to buy virtual land.
Not to be confused with cross-chain.
Dive Deeper: What Facebook’s “Meta” Rebrand Means for Marketers
Minting is buying an NFT as its very first owner. When you’re the first to buy directly from the creator, who lists the asset and transfers it to you, it often guarantees you the lowest purchase price.
All NFTs have one mint. If you scroll through the sales history, the first sale is called “mint.” If the asset is for sale with no ownership history, you would be buying a mint.
Sometimes, creators offer “free mints” to help the engagement of their collection. That means you can buy the NFT for $0 plus gas fees. And because you minted for free, if the collection succeeds, you have the highest chance to resell at a profit.
NFA stands for “Not Financial Advice.” Ironically, it means the opposite by its context. Influencers may say “NFA” to hide their shilling intent. They know that most degens will buy what they say anyway, and saying “NFA” protects their reputation to keep shilling.
For example: “I just made 3X returns last week after buying from this NFT collection. You still have a chance if you buy ASAP!”
NFT (Non-Fungible Token)
NFT is a broad term that includes any form of tokenized digital assets, such as art, real estate, computer programs, photographs, music, videos, etc. It’s the real-life equivalent of collectibles, except they’re backed by the blockchain like cryptocurrencies. “Non-fungible” implies that NFTs are unique, even when they have the same appearance.
For example, there are 21 million Bitcoins. If Bitcoins were NFTs, each of the 21 million would be a different asset, with its own price and transaction history. Bitcoin No. 1 may be worth $1,000,000, and Bitcoin No. 20,482,586 could be $50.
When you buy an NFT, you’re buying the ownership of a digital asset. The asset itself may not be valuable, but your proof of ownership is. After purchasing it, the NFT will appear in your wallet.
As for the types of NFTs, there are multiple classifications:
- By format: Pictures, GIFs, video, music
- By tokenization (backed by physical assets): VR Land, real estate, physical art
- By practicality: Digital art, memberships, consumer perks, in-game privileges, event tickets
The fact we can prove ownership of digital assets creates a new virtual economy. NFTs are becoming a must-have among game studios, VR companies, and metaverse projects like Meta.
* What Are NFTs and How Do They Help Business?
* NFT Strategy: Everything You Need to Know to Get Started
* 5 Examples of Brands Using NFTs to Monetize Their Work
OG stands for “original,” and it’s a common prefix for blue-chip NFTs that have many similar collections. Some are derivatives, but most are knock-offs.
For example, the Bored Ape Yacht Club owns the OG “BAYC.” Non-originals are:
- Sub-collections like Mutant Ape Yacht Club
- Variations or derivatives from other creators (e.g. Basic Bored Ape Club, a scam)
- Misspelled collection copies (e.g. Boredd Ape Yachtt Club, a scam)
OG collections have the verified icon on OS.
OS is short for OpenSea, one of the biggest Ethereum NFT marketplaces.
A creator might use the OS prefix if they made similar collections on other marketplaces (e.g., SA for Solanart, SR for SuperRare, LL for Larva Labs).
Dive Deeper: Top 5 OpenSea Alternatives
Also known as avatars, profile pictures (PFPs) are the most popular NFT art. Bored Ape Yacht Club and CryptoPunks are PFP examples. Creators use generative art to create hundreds of characters and trait combinations. Some traits may have a lower chance to appear, which make some PFPs more valuable. Each trait has a different drop chance, with the rarest ones being the most valuable.
For example, on Bored Ape Yacht Club, there are about 46 apes with Solid Gold Fur, while over 1,370 have Brown Fur. Solid Gold has a rarity score ~30 times higher and sells for a 6.9x more expensive price. Their owners typically hold them long-term, and negotiating one would definitely cost more than 7x.
Users who buy PFPs often use them on their media profiles to promote the artist and, hopefully, increase the collection floor price. To create a PFP collection, you need a generative-art algorithm, a few templates, and traits.
In Play-to-Earn games (P2E, also known as game finance, or “GameFi”), players get paid based on skill and how long they’ve been in the community. It allows free-to-play gamers to get paid and premium ones to leverage their money. Unlike traditional games, P2E gives real value to in-game currency and tradeable items.
Once you earn NFTs or game tokens, you can swap them for Bitcoin or any other cryptocurrency, which you can then convert to fiat money. Or you can hold on to them and hope that they go up in price later.
P2E is essential for designing the metaverse.
Pump-and-dump schemes are price manipulations, presumably to benefit traders from price spikes. Investors join these pump-and-dump groups hoping to time these spikes, buying early and selling before prices go back to normal. Unfortunately, most members lose money because of the way insiders run them:
- First, the leaders secretly choose a coin. They typically have large portfolios and to avoid affecting the price, they buy the coin gradually for weeks. After they invest the last dollar, they schedule a “pump day” to share the secret coin with their hundreds of members (often on Telegram).
- On that day and hour, the leaders announce the coin, and all members rush to buy it, “pumping” the price by 2-10X. Once the price is high enough, the (largest holders) insiders sell all their positions without warning, often a few seconds after the announcement. In a few minutes, prices are back down, if not lower than before.
You might be lucky enough to sell before they do but, more often than not, you’re trapped selling at the bottom – because it’s not about the coin’s potential, but price manipulation.
Rug pulls refer to all the ways an NFT creator can scam the owners and get away with their funds. Here are three common tricks:
- Pre-Minting: Upcoming collections may involve pre-sales due to high demand. The user pays for the NFT before the mint day to reserve a spot. If it’s a scam, the owner will walk away without minting.
- Infinite Minting: Users buy cheap NFTs hoping that they appreciate due to scarcity. After selling most of the collection, the owner adds hundreds of new NFT copies and prices them below floor prices. NFT buyers can’t sell without losing money, and they eventually fall to zero.
- Abandonment: When the collection gets enough demand, the owner removes the website, the Discord group, and the media content. Once holders find out, they’ll try to sell the NFTs as quickly as possible. The creator profits from the sale rush.
Most rug pulls look like any legit collection, and they gain popularity because the owners shill their NFTs.
Shilling is when you encourage others to buy an NFT you own for more than you paid – even if that means lying. It’s not value-selling; it’s an exit scam.
Shilling is common among flippers, influencers, and pump-and-dump groups. Creators may also do it before a rug pull. Shilling always involves optimism and urgency to discourage critical thinking.
To the Moon
Someone who says “token XYZ to the moon” is confident that a coin they have bought will skyrocket in price. Not just 2X or 10X, but high enough to make life-changing money. It’s believing the price will go up exponentially if they hold for long enough.
“Bitcoin to the Moon!” shows bullish excitement. However, here are the connotations:
- Investor opinion is driven by emotion and hope rather than analysis
- Investors could be overly optimistic about prices
- Investors are trying to shill a project
- Investors are likely holders who will lose the exit opportunity (since “moon” isn’t a price target)
Traits are all the properties that make an NFT unique in its collection. While most traits are visuals (background, color, accessories), these could also be stats and scores (e.g. 59/100 strength in a game NFT).
This is why you can’t find two identical PFPs within the same collection. Traits also add scarcity: You can only create as many NFT combinations as you can make.
If the trait is a number, either the first or the highest one will be the most valuable. If it’s a visual quality, it will be the trait with the lowest chance to appear. A priceless NFT would have all rare traits combined.
Web3 (or Web 3.0)
Web3 is the third iteration of the Internet, a network of decentralized applications (dApps) running on different blockchains. It is built using artificial intelligence, machine learning and the semantic web, and uses the blockchain to keep your information secure.
To trade on these dApps, we use Web3 wallets, which are self-custody digital wallets that can store both crypto and NFTs. You can access these assets from any dApp as long as it’s on the same blockchain (which by default is Ethereum Mainnet). If the dApp builds on Binance Smart Chain, you’ll need to switch to BSC.
Examples of Web3 wallets are:
Dive Deeper: What Is Web 3.0? The Future of the Internet
Whitelist (WL Spots)
If an NFT collection is very anticipated, it may sell out within minutes after the mint. Whitelists give early followers an opportunity to get them first. And unlike airdrops, they are free to join.
For example, a creator might give away one hundred WL spots to random people following them on social media. So collections instead have a mini-game where only the best players earn a spot on the whitelist. The creator decides what the whitelist benefits are, such as:
- being the first to buy the NFT
- getting higher rarities
- getting a discount
- getting the NFT for free or even with zero gas fees
Learn More About NFT Terms
How many of these words did you know? Maybe of all of them, maybe none. The NFT space changes fast, and what you know today may be outdated next week.
That’s why at Single Grain we regularly update our content. Want to be up to date with the latest NFT buzzwords? Then bookmark this NFT Glossary and revisit it once in a while.
Hopefully you learned enough new words in the NFT glossary to sound like pro! But if you just want an expert NFT agency to market your NFT project for you, click here.