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When I first heard the word "unobtanium" used in Avatar it broke the 4th wall for me because I had heard it in other contexts, generally used in a joking way and so it seemed really out of place.

Was it meant to be a joke within the context of the story? It seemed to me that the characters used the term literally without any sense of irony, as though it were the accurate technical nomenclature for the mineral. But that doesn't mean it actually was the true name; it could have originated among the characters as a joke but then become the de facto jargon of the humans on Pandora.

Or was this just a badly placed in-joke that most audiences were expected to overlook? Some other reason?

Is there any known explanation either within the story or background of the film?

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    From an answer to Is Unobtanium an element or a compound?: "When the world's first high-temperature superconductor was created in the late twentieth century, it proved to be useless because of inherent instabilities. Further efforts proved futile, and researchers finally termed their goal “unobtainium” (the spelling was later changed to “unobtanium” to conform to chemical element naming [...])" Not sure whether that qualifies as a dupe or not. – Jenayah Jan 27 at 11:35
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    FWIW I think this is a good question, and not at all downvote-worthy. Throughout the rest of the film, the characters take their own universe pretty seriously, and the word "unobtanium" is the only such joke, which rather stands out like a sore thumb. Much like the "laser sword" in The Last Jedi. So I dare the downvoters to come up with an answer! – Mr Lister Jan 27 at 14:55
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    I wouldn't be at all surprised if it was meant as an in-universe joke by the in-universe engineers. C, one of the most widespread and influential programming languages ever, was named after a predecessor called "B". Its own descendants C++ and C#, each a different type of jargon meaning "the thing after C", are just as bad. These are the kind of jokes engineers come up with when you leave them unsupervised. – Cadence Jan 27 at 16:35
  • @Cadence Except according to the Jargon File, "C" was named because there was a language "BCPL", simplified to "B", and then succeeded by "C", following the acronym rather than the alphabet. – aschepler Jan 27 at 23:33
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    @Cadence Actually, C# was (in part) named as being the thing after C++ (rather than C). It's C++++ with the pluses rearranged into a sharp / hash. – Jasper Jan 28 at 1:50
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This was addressed in James Cameron's original scriptment. In short, the element received a 'joke name' (unobtanium being a name that scientists will often use to describe a desired element that doesn't actually exist) while it was still being investigated and the name simply stuck.

Pandora is blessed with a naturally occurring substance a million times more precious than gold. Its joke name of "unobtanium" has stuck, over the years. Unobtanium is a rare-earth mineral, formed volcanically, which is a room-temperature superconductor.

As noted in another answer, the term Unobtanium for a room-temperature superconductor existed prior to the element actually being found on Pandora.

When the world's first high-temperature superconductor was created in the late twentieth century, it proved to be useless because of inherent instabilities. Further efforts proved futile, and researchers finally termed their goal “unobtainium” (the spelling was later changed to “unobtanium” to conform to chemical element naming, although unobtanium is a compound, not an element). There matters stood until the first unmanned exploration vehicle reached Alpha Centauri A and discovered deposits of a high-temperature superconducting substance on an Earth-like moon named Pandora—unobtanium had been obtained at last.

Avatar: An Activist Survival Guide

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