CCE NFTs, Tokenization, and Digital Assets 1 — Questions and Answers
Question 1: What makes a Non-Fungible Token (NFT) different from a fungible cryptocurrency like Bitcoin?
- NFTs use a different consensus mechanism than fungible tokens
- NFTs are unique and non-interchangeable, each with distinct metadata and ownership records (Correct answer)
- NFTs can only be created on the Ethereum network
- NFTs do not require a blockchain for ownership verification
Correct answer: NFTs are unique and non-interchangeable, each with distinct metadata and ownership records
Unlike fungible tokens where each unit is identical and interchangeable, NFTs have unique identifiers and metadata, making each one distinct and verifiable on-chain.
Question 2: Which Ethereum token standard is specifically designed for Non-Fungible Tokens (NFTs)?
- ERC-20
- ERC-721 (Correct answer)
- ERC-1400
- ERC-4626
Correct answer: ERC-721
ERC-721 defines the standard interface for NFTs on Ethereum, specifying ownership tracking, transfer functions, and unique token ID management.
Question 3: What is the role of metadata in an NFT?
- Metadata stores the gas fee history for the NFT's transactions
- Metadata contains the descriptive attributes and media (image, video) associated with the NFT (Correct answer)
- Metadata records the staking rewards earned by the NFT holder
- Metadata defines the smart contract bytecode for the NFT collection
Correct answer: Metadata contains the descriptive attributes and media (image, video) associated with the NFT
NFT metadata includes the token's name, description, and media URI, typically stored on IPFS or Arweave to provide the content that makes each NFT unique.
Question 4: What does 'tokenization of real-world assets' (RWA) mean in cryptocurrency?
- Converting physical cash into cryptocurrency on a centralized exchange
- Representing ownership of tangible assets (real estate, commodities, equities) as blockchain tokens (Correct answer)
- Creating stablecoins backed by fiat currency reserves
- Issuing NFTs that depict images of real-world objects
Correct answer: Representing ownership of tangible assets (real estate, commodities, equities) as blockchain tokens
RWA tokenization converts the ownership rights of physical or traditional financial assets into digital tokens on a blockchain, enabling fractional ownership and 24/7 trading.
Question 5: What is a royalty mechanism in an NFT smart contract?
- A fee paid to the NFT marketplace for listing an item
- A percentage of secondary sale proceeds automatically sent to the original creator via the smart contract (Correct answer)
- A reward distributed to NFT holders for holding tokens over time
- A gas refund issued to buyers of high-value NFTs
Correct answer: A percentage of secondary sale proceeds automatically sent to the original creator via the smart contract
NFT royalty mechanisms (e.g., EIP-2981) encode creator royalty percentages in the smart contract, enabling automatic royalty payments on secondary market resales.
Question 6: What is IPFS and why is it commonly used for NFT storage?
- A centralized cloud database used to store NFT auction history
- A decentralized peer-to-peer file storage protocol that provides content-addressed, censorship-resistant media hosting (Correct answer)
- An Ethereum layer-2 solution for reducing NFT minting gas costs
- A blockchain indexing service used by NFT marketplaces to query ownership data
Correct answer: A decentralized peer-to-peer file storage protocol that provides content-addressed, censorship-resistant media hosting
IPFS (InterPlanetary File System) stores NFT media off-chain using content hashes, ensuring the media referenced by an NFT's metadata remains tamper-proof and decentralized.
CCE NFTs, Tokenization, and Digital Assets 1
What makes a Non-Fungible Token (NFT) different from a fungible cryptocurrency like Bitcoin?