Welcome to the World of NFTs. Presented by Fabrik Media.

NFT Glossary – Meanings & Definitions of Major NFT Terms

1. Fungible / Fungibility

Fungibility is a property of any digital asset or goods which denotes whether it’s interchangeable or indistinguishable from another identical item. That is, if a digital asset or an item can be replaced by another identical item without changing its value, it is Fungible.

Similarly, Non-Fungible items or assets are those that can’t be interchanged and have their own unique value.

2. Non-Fungible Tokens

A Non-Fungible Token (NFT) is a type of cryptographic token which represents a certain value on the blockchain.

NFTs certify that a digital asset is unique and not interchangeable.

These digital assets can be any form of digital artwork, photos, videos, games, etc.

Additionally, NFTs can act as proof of ownership for a specific digital asset that can be sold or bought.

Different Types of Tokens

Essentially, there are different types of tokens: ERC-20, ERC-721, and ERC-1155.

ERC-20

ERC-20 tokens are fungible and have identical values for different items.

For further simplification, simply compare ERC-20 tokens to currency notes.

That is, two $100 bills are different items but hold the same value and are interchangeable.

ERC-721

ERC-721 is a Non-Fungible Token where each of them is unique and has its own value.

ERC-1155

While ERC-20 and ERC-721 are single tokens, ERC-1155 supports multiple tokens usage.

ERC-1155 brings the best of both worlds by acting as a fungible as well as a non-fungible token.

The only drawback of ERC-1155 is the lack of a robust tracking system and data holding capacity.

3. Blockchain

The blockchain is essentially a large list or database that records all the data in every single block.

As the name suggests, a blockchain stores data in blocks that are interconnected like a giant chain.

Although these blocks can store all kinds of information, they are most commonly used to store transaction data like a distributed ledger.

The blockchain is one of the safest and most secure databases that operates in a decentralized way.

It also follows a linear addition of new blocks as each of them is added at the end of the blockchain.

So, the data in the blocks is always permanent and cannot be manipulated.

4. Decentralized / Decentralization

Decentralization is the process of distributing control over multiple individual entities to avoid the concentration of power/control on a single entity.

In relation to NFTs and cryptocurrencies, the blockchain is decentralized to make it more secure.

That means the blockchain is run and maintained by several nodes that verify each transaction or information.

The only way to make major changes to the blockchain is when each of the nodes agrees on a general consensus.

Decentralized Apps (dApps)

Decentralized Apps are computer software that run on distributed ledger systems like the Ethereum Blockchain.

dApps are P2P applications where no single organization or entity governs the working of the app.

5. Node

Nodes are individuals or computers who are a part of the blockchain network.

The blockchain has separate nodes to avoid the network being hacked because each node has a copy of the ledger and the data in it.

Whenever miners add any transaction to the block, it has to be verified by a node to determine whether it is legitimate or not.

Once the block is passed by a node, it is broadcasted to other nodes.

6. Mining

Mining is a process of validating transactions on the blockchain.

Whenever a transaction is requested, miners have to solve a unique cryptographic problem to validate it.

7. Cryptography

Cryptography is the process where miners solve unique mathematical problems to accept transactions.

This is a method of encryption to protect data from being accessed by unwanted people.

The process of solving these problems takes a lot of energy and computation power.

The sole purpose behind having such an extensive process is to avoid any manipulated data from entering the blockchain.

8. Hash

A Hash is a mathematical function that converts input information of any length into an output of a fixed length.

Hashing is designed to be a one-way function to validate any data which can’t be reverse-engineered.

Additionally, any specific data will always bring an output hash of the same value.

Hashing algorithms are used in the process of mining where cryptographic problems are solved to validate transactions.

9. Proof of Work

Whenever the cryptographic problem is solved by the miner, it is called proof of work.

Proof of work gives the literal proof of how much energy or electricity was spent while validating the transaction to a node.

In this case, the costs incurred in mining are charged to the original owner who initiated a transaction.

10. Proof of Authority

In a proof of authority-based blockchain, only a few nodes are granted permission to approve transactions.

This is faster and more efficient than proof of work but it’s also centralized.

11. Proof of Stake

The Proof of stake model only allows a person to mine cryptocurrencies based on the amount of that currency they own.

This follows an idea that the miner will be less likely to compromise the network if they have a stake in it.

12. Gas

Gas is a type of fee that you need to pay to the miners.

It is basically a transaction fee that covers the costs of mining which requires a lot of energy and computational power.

Gas fees are usually measured in the unit of Gwei where 1 Gwei = 0.000000001 Ethereum.

13. Smart Contracts

Just like legal contracts, Smart Contracts exist on the Ethereum blockchain and NFTs that hold the concerned parties accountable.

They are written in computer codes instead of normal language.  All parties can see and approve Smart Contracts to maintain transparency.

14. Address

A Cryptocurrency address is an alpha-numeric code used to locate and store cryptocurrency coins.

In effect, Cryptocurrency addresses are like email addresses for the blockchain. Without a proper address, neither transactions nor coins can be processed.

15. Wallet

As the name implies, a cryptocurrency wallet is used to keep your coins.

These wallets can either be physical or digital, based on the level of security a user expects.

Physical wallets are virtually impossible to hack as the recovery seed is stored physically.

16. Seed

A seed is like the security or recovery code for your cryptocurrency wallet.

If something goes wrong or you can’t access your wallet, a designated unique seed can be used to recover it.

A seed consists of 12 random words in a specific order that are provided when you create your account.

17. Public Key

A Public key is used to purchase cryptocurrency or receive transactions to your wallet.

Keys are usually made up of an alpha-numeric code that is extremely hard to hack.

These keys can be accessed by anyone to send the original owner cryptocurrency coins.

18. Fiat Currencies

Fiat Currencies are the opposite of decentralized cryptocurrencies.

They are controlled and moderated by government or private institutions like the native currency you use for cash money.

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