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NFTs and Digital Assets Flashcards

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  1. What is the ERC-1155 standard, and how does it differ from ERC-721?

    Answer: ERC-1155 supports both fungible and non-fungible tokens in a single contract, while ERC-721 handles only unique NFTs

    ERC-1155 is a multi-token standard that allows a single smart contract to manage multiple token types — both fungible and non-fungible — improving efficiency over deploying separate ERC-20 and ERC-721 contracts.

  2. What does 'fractionalization' of an NFT mean?

    Answer: Dividing ownership of an NFT into multiple fungible tokens so several parties can share ownership

    NFT fractionalization locks an NFT in a smart contract and issues fungible tokens representing fractional ownership, lowering the cost barrier for expensive blue-chip NFTs.

  3. What is a 'dynamic NFT' (dNFT)?

    Answer: An NFT whose metadata and appearance can change based on external data or on-chain conditions

    Dynamic NFTs use oracles or on-chain logic to update their metadata — for example, a sports card NFT that reflects a player's real-time stats — making them responsive to real-world events.

  4. What is 'provenance' in the context of NFTs?

    Answer: The verifiable ownership and transaction history of an NFT recorded on the blockchain

    Blockchain provenance provides an immutable record of every wallet that has owned an NFT, enabling buyers to verify authenticity and trace the asset back to its original minting.

  5. What is typically meant by a 'blue-chip NFT'?

    Answer: An NFT from an established, highly valued collection with strong market liquidity and brand recognition

    Borrowed from traditional finance, 'blue-chip NFT' refers to collections like CryptoPunks or Bored Ape Yacht Club — established projects with proven demand, high liquidity, and cultural cachet.

  6. What is the key risk of storing NFT media files on a centralized server rather than IPFS or on-chain?

    Answer: If the server goes offline, the media file disappears and the NFT loses its visual content

    If an NFT's image URL points to a centralized server that shuts down or changes its content, the token's metadata still exists on-chain but the linked asset becomes inaccessible — a problem known as 'link rot.'

  7. In the US, how does the IRS currently treat NFT sales for tax purposes?

    Answer: NFT sales are treated as capital gains or losses, similar to other cryptocurrency disposals

    The IRS treats NFTs as property; selling an NFT triggers capital gains tax — short-term (held under a year) taxed as ordinary income, long-term (held over a year) at preferential rates.