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As the popularity of NFTs continues to grow, collectors need to have a basic understanding of the blockchain and web3 technology that underpins them. If you're new to the world of NFTs and decentralized technology, you may come across many technical terms that can be confusing at first.

This article will cover some of the top blockchain and web3 terms that every NFT collector should know.

Blockchain Technology

  • Blockchain - A decentralized digital ledger that records transactions securely, transparently, and immutable way.

  • Proof-of-Work - The consensus mechanism used by Bitcoin and some other blockchain networks, where participants compete to solve complex mathematical problems in order to validate transactions and add them to the ledger.

  • Halving - A process built into the Bitcoin protocol where the reward for mining a block is reduced by half every 210,000 blocks, which occurs roughly every 4 years. This is done to control the supply of Bitcoin and prevent inflation.

  • Decentralized System - A system that operates on a peer-to-peer network rather than relying on a central authority or middleman.

  • IPFS - InterPlanetary File System, a decentralized file storage system that allows for fast, secure, and censorship-resistant file sharing.


  • Cryptocurrency - A digital or virtual currency that uses cryptography to secure and verify transactions and control new units' creation.

  • Bitcoin - The first and most well-known cryptocurrency, created in 2009 by an anonymous person or group using the pseudonym Satoshi Nakamoto.

  • Satoshis - The smallest unit of measurement for Bitcoin, with 100 million satoshis equal to one Bitcoin.

  • Ethereum - The second-largest cryptocurrency by market capitalization, Ethereum is an open-source, decentralized blockchain platform that allows developers to build decentralized applications (dApps).

  • Token - A digital asset representing ownership in a blockchain-based system or platform.

Decentralized Applications and Smart Contracts

  • Smart Contract - A self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. Smart contracts allow for the automation of complex transactions and eliminate intermediaries.

  • Web3 - A term used to describe the third generation of the internet, based on decentralized technologies and protocols.

Non-Fungible Tokens (NFTs)

  • Non-Fungible Token - An unique asset that cannot be replaced by an identical item, unlike fungible assets like currency or commodities.

  • NFT Marketplace - A platform where users can buy and sell non-fungible tokens (NFTs) directly with each other

Decentralized Finance (DeFi)

  • DAO - Decentralized Autonomous Organization, an organization that is governed by smart contracts and operates on a blockchain network without a central authority.

  • DeFi - Decentralized Finance, a movement that seeks to create financial systems that operate on blockchain networks and do not rely on traditional intermediaries such as banks.

  • DEX - Decentralized Exchange, a platform for trading cryptocurrencies and other digital assets without the need for intermediaries.

  • CEX - Centralized Exchange, a platform for buying and selling cryptocurrencies and other digital assets that is owned and operated by a central authority. CEXs typically charge fees for transactions and hold custody of users' assets.

Other Blockchain Concepts

  • Gas - A term used to describe the transaction fee paid to the network for the execution of a transaction on a blockchain.

  • Wallet - A software program that stores public and private keys used to interact with a blockchain network.

  • Consensus - The mechanism by which nodes on a blockchain network agree on the current state of the ledger.

  • Mining - The process of validating transactions on a blockchain network and adding them to the ledger in exchange for rewards.

  • Node - A device or computer that participates in validating and storing data on a blockchain network.

  • Layer 1 - The base layer of a blockchain network, where the most fundamental operations and consensus mechanisms take place

  • Layer 2 - A secondary protocol that operates on top of a blockchain network, designed to improve scalability and reduce transaction costs.

Understanding these terms will help you navigate the world of NFTs and decentralized technology with more confidence. By understanding the technology behind NFTs, you can make more informed decisions about collecting, trading, and investing in them.

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