NFTs have become extremely popular in the past year. Almost everyone has heard of it by now and a large part of those people have started doing more research. Again a large part of those people was so interested in it that they want to get involved with it.
What is very important, however, before you can (properly) start with NFTs, is that you have knowledge about them. Investing without knowledge is actually the same as gambling. This blog is a good starting point.
Today we look at the most important NFT terms. All the terms in this blog are very useful to know if you want to get off to a good start in the world of NFTs. For example, we look at what types of NFTs exist, but also at the ways in which NFTs can be traded, we also look at the names of different data when it comes to NFTs, and much more. Let’s get started soon!
What are the main NFT terms?
Non-fungible token – what is a non-fungible token?
NFT stands for non-fungible token and it means ‘non-replaceable token’. However, a better wording is a unique token. There is really only one unique non-fungible token, unlike a fungible token, such as Bitcoin or Ethereum, of which there are millions of identical ones.
If you sell 1 BTC today and buy back 1 BTC tomorrow, you probably don’t have the exact same BTC. However, you will never notice this and you cannot even find out. If you sell Crypto Punk #1234 today and buy it back next week, you will have exactly the same Crypt Punk in your wallet and you can check this too.
Smart contract – what is a smart contract?
A smart contract is a programmed contract. It is, as it were, a piece of code in which agreements are recorded. A smart contract can be used to perform certain things automatically, for example a transaction.
Such a smart contract can automatically check and therefore implement transactions. If the request for a transaction meets all the agreements, the transaction can be executed automatically. This means that no real person has to look at the transaction and the middle man is removed.
For example, when it comes to NFTs, smart contracts are often used in the minting process. The smart contract ultimately ensures that the NFTs actually become part of the blockchain, after you have made a ‘request’ for this transaction by pressing the mint button.
Gas fees – what are gas fees?
Gas fees are the costs you pay to make a transaction on a blockchain network. When you buy an NFT, you pay the gas fees for the network in addition to the costs for the NFT.
Gas fees exist to reward the validators/miners of a blockchain protocol. As a user of a network, you actually pay these gas fees to the validators/miners. Without them, the transaction would not have taken place at all.
Floor price – what is a floor price?
BEP-721 – what is BEP-721?
Sometimes NFTs are built on the Binance Smart Chain. When this is the case, they will often use the BEP-721 token protocol. This is the token protocol for NFTs on the Binance Smart Chain. A token protocol is a set of rules that the (code of the) token must comply with.
ERC-721 – what is ERC-721?
Most NFT projects to date are built on the Ethereum network. When an NFT is built on the Ethereum network, it often uses the ERC-721 token protocol. Thus, ERC-721 is a token protocol for NFTs on Ethereum.
ERC-1155 – what is ERC-1155?
Another token protocol on the Ethereum network is ERC-1155. ERC-1155 is often used when multiple items are packed in one NFT. Consider, for example, a racing game. When you start you need a car and a driver. These can then be packed together in an ERC-1155 NFT.
Minting – what is minting?
Minting is the ‘creation’ of the NFT. It is the process where the NFT actually becomes part of the network (e.g. Ethereum or Binance Smart Chain). As a buyer of a new project, you mint the NFT and make it part of the relevant blockchain by running the smart contract.
Want to learn more about how to make an NFT? Then read our article that gives you a precise step-by-step plan.
Burning – what is burning?
When they say that NFTs are being burned, a certain amount of NFTs are sent to a non-existent wallet, so these NFTs are lost.
When this happens with NFTs, it’s often not a good sign. Burning is a process to reduce the supply by making tokens disappear. With a fungible token, this can be a clever trick to increase the price, namely by reducing the supply. However, in an NFT project, the supply is already very small in most cases. When there are NFTs being burned, this often means that the demand is (too) small to sell out.
Ethereum – what is Ethereum?
Ethereum is a blockchain network on which smart contracts are possible. Most NFTs to date use the Ethereum network.
Ethereum can be seen as the new internet. It is a decentralized network on which decentralized applications (dApps) can be built, by means of smart contracts. In theory, the possibilities are endless.
Whitelist – what is a whitelist?
As we mentioned earlier, handing out spots on the whitelist was a solution to the gas wars. The whitelist is in fact a list of people who have priority over the rest in the mint phase. They can mint in the presale.
Not only do they have the guarantee of an NFT, but they can also avoid the pressure on the network, which means that they will probably pay lower gas fees. It also often happens that the mint price is cheaper for the people on the whitelist. For example, remember that they pay 0.035 ETH, instead of 0.05 ETH.
Metadata – what is metadata?
The metadata is, as it were, the NFT. It is a JSON file in which all data of the NFT is stored. For example, when you open the metadata of a certain Bored Ape, you can see exactly which Bored Ape this is. You can see the name (for example Bored Ape Yacht Club #1234), but also what characteristics it has. It is, as it were, a passport, containing all the data of the NFT.
This data is often what makes one NFT more expensive than another because one NFT has rarer features than another. All of this is reflected in the metadata.
Floor sweep – what is a floor sweep?
A floor sweep is a phenomenon whereby the NFTs that are at / close to the floor price are bought up. This causes the floor price to rise because all NFTs that are at / close to the floor price are sold.
A floor sweep is often performed by the makers of a project, but it can also be done by a whale (an investor who invests with very large amounts of money).
Gas war – what is a gas war?
A gas war arises when many people want to carry out a transaction on a network at the same time, for example when the mint opens for a large NFT project. The gas fees then rise very quickly, because a lot of people want to make a transaction at the same time. The whitelist was invented as a solution to this, which we will come back to later.
Software wallet – what is a software wallet?
A software wallet is a digital wallet in which you can store your NFTs. Such a smart contract is secured with a private key and you are the only one who has access to your wallet. So you are the only one who can access your NFTs, as long as you actually keep your private key private.
The most used software wallet at the moment is MetaMask. The MetaMask wallet can be used for almost all blockchain networks. However, not all. For example, you cannot use MetaMask for Solana (SOL). You have different wallets for that, for example, the Phantom wallet.
OpenSea – what is OpenSea?
OpenSea is currently the largest NFT marketplace. OpenSea makes it possible to trade NFTs on the Ethereum blockchain and the Polygon network. The largest collections of the moment all became big on OpenSea and according to many, it is the place to be when it comes to NFTs.
Rarible – what is Rarible?
However, OpenSea is not the only option, for example, you also have Rarible. Rarible is currently the second-largest NFT marketplace. Rarible also uses the Ethereum network, but Flow (FLOW) NFTs and Tezos (XTZ) NFTs can also be traded via Rarible.
Solsea – what is Solsea?
The NFT marketplaces we discussed earlier can be used for the Ethereum network and some other (smaller) networks. However, these are by no means all networks on which NFTs exist.
This is also possible, for example, on the Solana network. The largest marketplace on Solana is Solsea.
Royalties – what are royalties?
Creators of an NFT project can set royalties on their NFTs. This means that a part of this NFT, as it were, always remains theirs, at least a part of the profit right of this NFT. When the NFT is then resold, they will receive a portion of this amount.
Suppose the creators of a project set a royalty percentage of 5%, so they will receive 5% of each subsequent sale. So when a buyer resells the NFT for $10,000, the creators get $500.
Adding royalties to an NFT project is popular among artists as it can generate a source of passive income for them. Do you want to know how you can also earn passive income through NFTs? You can read more about this in this blog!
10k project – what is a 10k project?
’10k project’ is a term used for an NFT collection consisting of 10,000 NFTs. This term came about because of course a lot of 10k projects were released in the past year because these turned out to be successful.
Examples of major 10k projects include the Crypto Punks, the Bored Ape Yacht Club, the Doodles, and World of Women.
Crypto Punks – what are Crypto Punks?
Crypto Punks, along with the Bored Ape Yacht Club, is one of the largest NFT collections to date. They are 10,000 unique pixel art characters and at the time of writing (January 24, 2022) ETH Crypto Punks have been traded
Discord – what is Discord?
Discord is a chat service in which almost all NFT projects have their own communities. You can join and chat with others who are interested in the NFT project.
WAGMI – what is WAGMI?
WAGMI means “We’re All Gonna Make It” and it’s thrown around many NFT Discord communities when the floor price is going up significantly or when something happened to the NFT project and everybody holds on to their NFT and refuses to sell.
NGMI – what is NGMI?
NGMI means “Not Gonna Make It” and is usually used for people who paper hand (sell their NFT for LESS than they bought it) their NFT.
Paper Hands – what are Paper Hands?
Paper hands are people who sell their NFT below the price that they bought it for (usually for a loss) or that sell right after mint, or when the price drops a little.
Diamond Hands – what are Diamond Hands?
Diamond hands are people who hold their NFT without selling, even when the price drops by over 50%.
Rugged / Rugpull – what is Rugged?
A rug pull or a project that is rugged means that the creator of the NFT project takes all the money that he/she/they earned from selling the NFT, and vanishes and leaves everyone hanging and left with NFTs that are worth nothing. On Solana NFTs, this has been a problem in late 2021.
Today we looked at the key terms when it comes to NFTs. Understanding all these terms will go a long way when it comes to analyzing the NFT market.
However, it is always good to learn about NFTs so that you can start investing with even more knowledge. Learning more can be done, for example, on the basis of blogs that we wrote earlier. Here are some suggestions:
‘What is a non-fungible token? (NFT)’, in this article, I explain exactly what an NFT is and give you several examples of how it can actually apply.
If you want to make your own NFT, the article ‘How do you make an NFT? – complete explanation for beginners’ can help you further.
You also want to avoid being scammed, because unfortunately this also happens too often within the world of NFTs. For this, it is useful to read the article ‘The most common NFT scams’.