How to Collect Digital Art: A Glossary of NFT Terms

A list of wallet addresses affiliated with users who are authorized to participate in specific events or activities. In the context of NFTs, allowlists are often used for access to mints, exclusive drops and privileges like early access.

Created in 2009 by an anonymous individual or group with the pseudonym Satoshi Nakamoto, Bitcoin is the pioneering and most well-known cryptocurrency and blockchain. Functioning on a decentralized peer-to-peer network, Bitcoin enables secure, transparent and censorship-resistant transactions.

A decentralized and distributed ledger that records transactions across a network of computers. Blockchains provide transparency and security for all transactions. The most widely used blockchain for digital art is Ethereum, although they are often minted on other blockchains with growing digital-art ecosystems like Bitcoin, Solana, Cardano and Tezos.

A phrase adopted from the art world, “blue chip” refers to digital artworks of high significance, whether financial or historical.

The act of taking a specific token out of marketplace circulation by moving it to an NFT wallet that can’t be accessed. There are sometimes incentives for burning NFTs, such as exchanging them for physical objects or upgrading the existing artwork.

A community structure that is organized and run whole (or in part) by a decentralized computer program. This allows for DAOs to operate transparently: decisions are often made through consensus, and are not influenced by a central leading authority. Finances and voting are most often handled through a blockchain. Many NFT and digital-art projects and communities involve governance through DAO structures.

Any artwork that is produced using digital technologies and tools, encompassing a variety of mediums – such as generative, AI, animation, photography and more. The advent of NFTs revolutionized the way digital art could be bought and sold, as they provided a secure and transparent way to establish ownership and authenticity.

A unique, dynamic style of auction where a lot is offered at an established maximum price, which is incrementally lowered until it reaches a minimum resting price or a bid is made. It is increasingly the more common format for digital art auctions, as opposed to the English auction. At Sotheby’s, digital art is sold under a mixture of Dutch and English auction formats.

NFT editions are not dissimilar to editions in traditional art. The edition size refers to the number of identical copies or versions of a digital artwork or asset released by an artist. While NFT editions consist of the same content and attributes, they may vary in their traits or appearance, which can affect the rarity of a specific edition number.

A traditional style of auction where a lot’s price increases with each new bid, until being sold to the last bidder remaining. English auctions are the most common format of art auction – except for the sale of digital art, which increasingly uses the Dutch auction format. At Sotheby’s, digital art is sold under a mixture of Dutch and English auction formats.

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The standard interface for nonfungible tokens (NFTs) on the Ethereum blockchain. ERC-721s enable the creation and management of unique digital assets. These tokens are distinguishable from one another and can represent ownership of assets like art, collectibles or virtual real estate.

A blockchain created by Vitalik Buterin in 2015. Ethereum introduced a programmable blockchain, which allowed programmers to build and deploy applications with the use of smart contracts. Ethereum’s native cryptocurrency is Ether (ETH).

Essentially a utility charge for processing transactions on the blockchain. All transactions on the blockchain require computing power; the cost of these processes are covered by “gas fees.” NFT transactions, especially on platforms like Ethereum, often incur such fees. These fees vary based on network demand and the complexity of the transaction.

On occasion, “gas wars” can occur, where intense competition arises for users to have their transactions processed quickly. This involves offering higher gas fees to miners, especially during times of network congestion or high demand.

Refers to both digital and physical art that is created using algorithms or computational processes, since at least the 1950s. The artist establishes a set of rules or parameters for creation, and the artwork is generated autonomously within them, resulting in unique and often unpredictable pieces.

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Metadata refers to additional information or data attached to a digital asset (such as an artwork). Metadata can include details about the artwork, its creator, creation date and any other relevant information. It plays a crucial role in providing context and provenance to the digital asset.

A collective, virtual, shared space that combines aspects of augmented and virtual reality on the internet. It encompasses digital environments, experiences and assets, including NFTs / digital art, where users can interact and engage with a persistent and immersive online world.

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The process of creating and issuing a new NFT. Minting involves the generation of a unique token using a smart contract and linking it to a specific digital asset (for example, a URL to a JPG file), establishing its existence on the blockchain.

An abbreviation for “Non-Fungible Token.” NFTs are unique cryptographic devices that represent the ownership or proof of authenticity of a specific digital asset. An NFT’s use of blockchain technology allows the tokens to verify ownership and ensure scarcity. While “NFT” is often used to refer directly to a work of digital art, it is technically the token that certifies the provenance of an asset – and in fact, NFTs are often used to authenticate physical assets as well.

In the context of digital art, a one-of-one is an asset or artwork that is entirely unique and exists as a singular item. Unlike editions, a one-of-one is the only instance of that specific content on the blockchain. It is roughly equivalent to a monoprint or single-edition print or photograph.

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A newer type of NFT / digital art protocol that allows for Bitcoin nodes to be inscribed with data. Within the inscriptions, users can include smart contracts, allowing for NFTs / digital artworks to be minted. These inscribed nodes, called ordinals, provide the means to represent ownership and uniqueness for a digital asset. Each ordinal is unique.

Included as a stipulation coded into the smart contract of an NFT, royalties are the percentage of subsequent sales of an NFT / digital artwork that are paid to the original creator(s).

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The marketplaces where digital artworks are bought and sold after they are minted (or where physical artworks are exchanged after an initial sale via an artist or gallery). Secondary markets provide liquidity to the holders and allow digital art collectors to trade assets directly. Collectors can sell and buy artworks by connecting their wallet to the marketplace.

Some marketplaces are noncurated, allowing for anyone to buy, bid and mint NFTs, while others represent a curated selection. Sotheby’s Metaverse is a curated secondary marketplace.

NFTs require blockchains that use smart contracts, which are self-executing contracts with predefined terms written in code. NFTs use smart contracts to automate the creation, transfer and execution of ownership for digital assets.

A digital representation of ownership or access rights on a blockchain. In the context of NFTs, each unique item is represented by a specific token; this allows for ensuring individuality and provenance.

A digital tool that allows individuals to store, manage and interact with their digital assets, including cryptocurrencies and NFTs. A collector’s wallet is crucial to their ability to own and sell NFTs, because it provides a secure means of storing private keys and the necessary funds for purchases and fees.

Considered by many to be the next evolution of the internet following Web 2.0. Web3 is characterized by decentralized protocols and technologies (including blockchain and cryptocurrencies). For many, the aim of Web3 is to create a more user-centric, open and transparent internet where users have greater control over their data, assets and interactions.