CCE NFTs, Tokenization, and Digital Assets 4 — Questions and Answers
Question 1: What is the primary legal challenge when an NFT represents ownership of a physical asset like real estate?
- Gas fees become prohibitively high
- On-chain ownership must still be reconciled with off-chain legal title systems (Correct answer)
- NFTs cannot store metadata about physical items
- Smart contracts automatically update land registries
Correct answer: On-chain ownership must still be reconciled with off-chain legal title systems
NFTs representing physical assets face a bridging problem: blockchain ownership records are not automatically recognized by traditional legal title systems, requiring off-chain legal agreements.
Question 2: Which ERC standard introduced a semi-fungible token that can behave as both fungible and non-fungible depending on context?
- ERC-20
- ERC-721
- ERC-1155 (Correct answer)
- ERC-4626
Correct answer: ERC-1155
ERC-1155 is a multi-token standard that supports both fungible and non-fungible tokens within a single contract, enabling batch transfers and hybrid asset types.
Question 3: A collector purchases an NFT of a digital artwork. What does the collector typically NOT receive by default?
- A cryptographic proof of transaction
- Copyright or intellectual property rights to the underlying artwork (Correct answer)
- A record on the blockchain ledger
- The token's on-chain metadata
Correct answer: Copyright or intellectual property rights to the underlying artwork
NFT ownership transfers the token itself but not the underlying copyright unless explicitly assigned in a separate legal agreement.
Question 4: In the context of real-world asset (RWA) tokenization, what does 'fractionalization' primarily enable?
- Splitting a token's smart contract into multiple contracts
- Dividing ownership of a high-value asset into smaller, tradeable units (Correct answer)
- Breaking an NFT's metadata across multiple IPFS nodes
- Reducing gas costs by fragmenting transactions
Correct answer: Dividing ownership of a high-value asset into smaller, tradeable units
Fractionalization allows a single high-value asset, such as commercial real estate or fine art, to be divided into many tokens so more investors can participate.
Question 5: What is 'NFT wash trading' and why is it a concern?
- Selling the same NFT on multiple marketplaces simultaneously
- Buying and selling an NFT between related wallets to artificially inflate its price history (Correct answer)
- Laundering fiat currency through NFT purchases
- Transferring NFTs across blockchains via bridges
Correct answer: Buying and selling an NFT between related wallets to artificially inflate its price history
Wash trading involves coordinated self-dealing transactions to create a false appearance of demand and price appreciation, misleading genuine buyers.
Question 6: Which storage approach poses the greatest long-term risk to NFT metadata integrity?
- Storing metadata on IPFS with content-addressed hashes
- Storing metadata on Arweave with permanent storage fees
- Storing metadata on a centralized server referenced by a mutable URL (Correct answer)
- Encoding metadata directly on-chain as base64
Correct answer: Storing metadata on a centralized server referenced by a mutable URL
A mutable URL pointing to a centralized server can change or go offline, causing the NFT to point to missing or altered content—commonly called 'rug pulling' the metadata.
Question 7: When a DAO votes to tokenize its treasury assets, which governance risk is most directly introduced?
- Token holders can mine new blocks faster
- Large token holders can collude to approve self-serving asset valuations (Correct answer)
- Tokenized assets automatically vest over time
- Smart contracts cannot hold tokenized real-world assets
Correct answer: Large token holders can collude to approve self-serving asset valuations
Tokenizing treasury assets within a DAO can enable majority token holders to manipulate valuations or asset transfers for personal benefit, a form of plutocratic governance risk.
CCE NFTs, Tokenization, and Digital Assets 4
What is the primary legal challenge when an NFT represents ownership of a physical asset like real estate?