NFT Art NFT Fundamentals and Concepts 4 — Questions and Answers
Question 1: What is 'wash trading' in NFT art markets?
- Cleaning digital files of malware before listing
- Artificially inflating an NFT's trading volume by buying and selling between controlled wallets (Correct answer)
- A method of converting NFT proceeds to clean cryptocurrency
- Transferring NFTs between wallets without a sale
Correct answer: Artificially inflating an NFT's trading volume by buying and selling between controlled wallets
Wash trading is a manipulative practice where the same entity buys and sells an NFT to themselves to fake high trading volume and inflate perceived value.
Question 2: What is the ERC-721 token standard?
- A standard for creating fungible tokens on Ethereum
- The Ethereum standard that defines how non-fungible tokens (NFTs) are created and managed (Correct answer)
- A regulation governing NFT taxation in the US
- A marketplace fee structure for art NFT sales
Correct answer: The Ethereum standard that defines how non-fungible tokens (NFTs) are created and managed
ERC-721 is the Ethereum token standard that establishes the rules for creating non-fungible tokens, ensuring each token has unique properties.
Question 3: What is a 'custodial' NFT wallet?
- A wallet that automatically stores NFTs in a museum's digital vault
- A wallet where a third party (like an exchange) holds the private keys on the user's behalf (Correct answer)
- A multi-signature wallet requiring multiple parties to approve transactions
- A hardware wallet used exclusively for storing high-value NFTs
Correct answer: A wallet where a third party (like an exchange) holds the private keys on the user's behalf
A custodial wallet means a third party controls the private keys, meaning they technically have custody of your NFTs, not you.
Question 4: What does 'CC0' licensing mean for an NFT artwork?
- The artwork is copyrighted and cannot be reproduced
- The creator surrenders all copyright, placing the work in the public domain (Correct answer)
- Only the NFT owner has commercial rights to the artwork
- The artwork can only be used in non-commercial contexts
Correct answer: The creator surrenders all copyright, placing the work in the public domain
CC0 (Creative Commons Zero) means the creator waives all copyright claims, allowing anyone to use, reproduce, or commercialize the artwork freely.
Question 5: What is 'token gating' in the NFT art world?
- Restricting which artists can mint NFTs on a platform
- Using NFT ownership to control access to exclusive content, events, or communities (Correct answer)
- A security feature that delays large NFT transfers
- Limiting the number of NFTs one wallet can purchase
Correct answer: Using NFT ownership to control access to exclusive content, events, or communities
Token gating uses NFT ownership as a key to unlock exclusive benefits like private communities, events, content, or services.
Question 6: What is a 'rug pull' in the NFT art space?
- When an artist dramatically changes the style of their NFT collection
- When developers abandon a project and take investors' funds after the mint (Correct answer)
- When the floor price of an NFT collection drops suddenly
- When a marketplace removes an NFT collection for policy violations
Correct answer: When developers abandon a project and take investors' funds after the mint
A rug pull is a scam where creators collect mint funds and then abandon the project, disappearing with collectors' money.
Question 7: What is 'secondary market' royalties in NFT art?
- A fee paid to the marketplace each time an NFT is sold
- Automatic payments sent to the original artist whenever their NFT is resold (Correct answer)
- Taxes owed to the government on NFT profits
- Commission paid to the buyer's agent in an NFT transaction
Correct answer: Automatic payments sent to the original artist whenever their NFT is resold
Secondary market royalties are smart contract-enforced payments automatically sent to the original creator each time their NFT is resold on supported marketplaces.
NFT Art NFT Fundamentals and Concepts 4
What is 'wash trading' in NFT art markets?