Chapter 27 Exercises

Section A: Conceptual Understanding

Exercise 27.1 — NFT Ownership Analysis

Consider the following scenario: Alice mints an NFT on a platform that stores the artwork on a centralized server. Two years later, the platform shuts down. The server goes offline.

a) What does Alice still own after the server goes offline? Describe what remains on the blockchain.

b) What has Alice lost in practical terms?

c) If Alice had minted the same NFT using Arweave for storage instead of a centralized server, how would the outcome differ? What if she had used IPFS with no persistent pinning service?

d) Design a "storage resilience score" for NFTs that rates projects based on their storage architecture. What factors would you include? How would you weight them?

Exercise 27.2 — ERC-721 vs. ERC-1155 Design Decisions

You are designing a blockchain-based trading card game with the following assets: - 50 unique "legendary" cards (one of each) - 500 "rare" cards (20 copies of each of 25 designs) - 10,000 "common" cards (200 copies of each of 50 designs) - An in-game currency (Gold Coins) that is fully fungible

a) Which token standard(s) would you use for each asset type? Justify your choices.

b) Estimate the gas cost difference between using ERC-721 for all assets versus a hybrid ERC-721/ERC-1155 approach for minting the complete collection.

c) What trade-offs does ERC-1155 introduce for the "rare" and "common" cards compared to ERC-721? Consider uniqueness, marketplace compatibility, and collector perception.

Exercise 27.3 — The Metadata Dependency Chain

Examine the following tokenURI return value:

https://api.boredapeyachtclub.com/api/mutant/14732

a) Trace the complete chain of dependencies from blockchain to displayed image. How many potential points of failure exist?

b) Now compare with this tokenURI:

data:application/json;base64,eyJuYW1lIjoiTG9vdCAjNDIiLCJkZXNjcmlwdGlvbiI6...

How does the dependency chain differ? What are the trade-offs?

c) Propose a hybrid approach that balances cost, permanence, and decentralization. What compromises are necessary?

Section B: Market Analysis

Exercise 27.4 — Bubble Anatomy

The following table shows approximate monthly Ethereum NFT trading volume (in billions USD):

a) Plot this data (by hand or using software) and identify the approximate dates corresponding to each phase of the Gartner Hype Cycle: Technology Trigger, Peak of Inflated Expectations, Trough of Disillusionment, and the beginning of the Slope of Enlightenment.

b) The January 2023 spike interrupts the downward trend. Research or hypothesize what might have caused a temporary reversal. (Hint: Consider the Blur marketplace launch and its token incentives.)

c) If 60-80% of the reported volume was wash trading (as estimated by multiple analysts), recalculate the "genuine" volume for each month. How does the adjusted picture change your assessment of the market's actual size?

Exercise 27.5 — Greater Fool Analysis

A PFP NFT collection mints 10,000 items at 0.1 ETH each. The creator earns 1,000 ETH from the mint. Over the next 12 months: - Secondary market volume totals 50,000 ETH - The creator earns 5% royalties on secondary sales (2,500 ETH total) - Floor price rises from 0.1 ETH to 5 ETH, then falls to 0.05 ETH

a) Calculate the total ETH spent by buyers across the mint and all secondary market transactions.

b) Calculate the total ETH received by sellers across all secondary market transactions.

c) Where did the difference go? Account for marketplace fees (2.5%), creator royalties (5%), and gas costs (estimate 0.01 ETH per transaction at ~5,000 transactions).

d) At the final floor price of 0.05 ETH, what is the total "market cap" of the collection? How does this compare to the total ETH spent by all buyers? What does this tell you about wealth creation vs. wealth transfer in NFT markets?

Exercise 27.6 — Wash Trading Detection

You are given the following transaction history for an NFT collection over one week:

a) Identify the transactions that appear to involve wash trading. What patterns led to your conclusion?

b) Calculate the "genuine" volume vs. "wash" volume based on your analysis.

c) How would the apparent price trend differ if you removed the suspected wash trades?

d) Propose three heuristic rules an automated system could use to flag potential wash trading. For each rule, discuss potential false positives (legitimate trades incorrectly flagged).

Section C: Critical Evaluation

Exercise 27.7 — Play-to-Earn Sustainability

Axie Infinity's SLP token had the following approximate price trajectory: - Jul 2021: $0.39 - Nov 2021: $0.07 - Mar 2022: $0.02 - Jul 2022: $0.004 - Dec 2022: $0.003

Meanwhile, daily SLP issuance through gameplay averaged approximately 40 million tokens per day throughout this period.

a) Calculate the total daily USD value of SLP issued at each price point. How did "daily player earnings" change?

b) For the system to be sustainable, where must the demand for SLP come from? Map the sources of SLP demand (breeding, speculation, utility) and explain why each source declined.

c) Design a modified token economy for a play-to-earn game that addresses the SLP inflation problem. What mechanisms would you use to balance token supply and demand? Consider burn mechanics, staking, and dynamic issuance rates.

d) A critic argues: "All play-to-earn games are Ponzi schemes because early players are paid with money from later players." A proponent argues: "Traditional gaming companies extract billions from players who receive nothing — at least P2E returns value." Evaluate both arguments. Under what conditions, if any, can a P2E economy be genuinely sustainable?

Exercise 27.8 — The Royalty Dilemma

You are an independent digital artist who has earned $50,000 in royalties over the past year from secondary sales of your NFT collection. A new marketplace launches that makes royalties optional, and within three months, 80% of trading volume has migrated to the new platform.

a) Calculate your projected royalty income for the next year under three scenarios: - Status quo (royalties enforced everywhere) - 80% of volume on zero-royalty platforms - You implement the Operator Filter Registry to block zero-royalty platforms

b) For scenario (c), what are the potential consequences of blocking the dominant marketplace? Consider liquidity, floor price, and collector sentiment.

c) Propose a royalty enforcement mechanism that could work at the smart contract level without depending on marketplace cooperation. What are the technical challenges?

d) Some argue that creator royalties on NFTs are analogous to droit de suite (artist's resale right) laws in Europe. Research droit de suite and compare: How is the legal mandate similar to and different from the smart contract approach? Why did one work and the other fail?

Exercise 27.9 — Honest Use Case Evaluation

For each of the following proposed NFT applications, evaluate whether the NFT adds genuine value over existing solutions. Rate each on a scale of 1-5 (1 = no advantage over existing solutions, 5 = transformative improvement) and justify your rating.

a) Concert tickets as NFTs (vs. traditional digital ticketing like Ticketmaster)

b) University diplomas as soulbound tokens (vs. traditional diploma verification services)

c) Real estate deed tracking on blockchain (vs. county recorder's office)

d) In-game weapon skins as NFTs tradeable across games (vs. Steam marketplace)

e) Medical records as patient-controlled NFTs (vs. traditional EHR systems)

f) Luxury goods authentication via NFC-linked NFTs (vs. brand authentication services)

For each, explicitly identify: What problem does the NFT solve? Does a simpler solution already exist? What new problems does the NFT introduce?

Section D: Technical Implementation

Exercise 27.10 — Smart Contract Design

Using Solidity (pseudocode is acceptable if you have not completed Chapter 13), design an NFT contract with the following features:

a) A minting function that stores metadata on-chain (not via external URI) for a collection where each token has a "name" (string), "color" (uint8 representing RGB), and "level" (uint8). Calculate the approximate gas cost of minting one token.

b) A royalty enforcement mechanism that prevents transfers unless the royalty has been paid. (Hint: Override the _transfer function.) What are the limitations of this approach?

c) A soulbound token variant where tokens cannot be transferred after minting. What functions from ERC-721 must be overridden or disabled?

Exercise 27.11 — Market Data Analysis

Using the nft_market_analysis.py code from this chapter's code directory (or your own implementation):

a) Generate synthetic NFT sales data for a collection of 10,000 items over a 24-month period that models the boom-bust cycle. Include: - A gradual price increase (months 1-8) - A rapid price spike (months 9-12) - A crash (months 13-18) - A long decline (months 19-24)

b) Inject wash trading into your dataset: 30% of transactions should be between a pool of 5 wallets that trade among themselves at escalating prices.

c) Implement a wash trading detection algorithm and test it against your dataset. Report precision and recall.

d) Visualize the market data with and without suspected wash trades removed. How does the narrative change?

Section E: Synthesis and Reflection

Exercise 27.12 — Historical Comparison

Compare the NFT bubble (2021-2023) to one of the following historical speculative episodes: - The Dutch Tulip Mania (1637) - The South Sea Bubble (1720) - The Dot-com Bubble (1995-2000) - The ICO Bubble (2017-2018)

In a structured essay (1,000-1,500 words), address: a) What was the genuine innovation underlying each bubble? b) What speculative narratives drove prices beyond fundamental value? c) How did the bubble end, and what survived? d) What structural similarities suggest these dynamics are inherent to human markets rather than specific to any technology?

Exercise 27.13 — Future Projection

It is now several years after the NFT crash. Based on the surviving use cases discussed in this chapter:

a) Predict three NFT applications that will be widely adopted within 5 years. For each, explain why the application is likely to succeed and what barriers must be overcome.

b) Predict three NFT applications that are commonly hyped but will NOT achieve mainstream adoption. For each, explain the structural barriers.

c) Will the term "NFT" still be used in consumer-facing products, or will the technology be absorbed invisibly into other platforms? Justify your prediction.

Exercise 27.14 — Ethical Analysis

The play-to-earn section of this chapter described Filipino players who relied on Axie Infinity for income during COVID lockdowns, then lost that income when token prices collapsed.

a) Who bears ethical responsibility for this outcome? Consider: Sky Mavis (the developer), the scholarship managers, the players themselves, the broader crypto market participants, and regulators who did not intervene.

b) Is it ethically different for a company to shut down a factory (eliminating jobs) versus allowing a token economy to collapse (eliminating P2E income)? Why or why not?

c) Should play-to-earn games operating in developing countries be subject to labor regulations? What would that look like in practice?

d) Design an ethical framework for evaluating play-to-earn games. What minimum requirements should a responsible P2E game meet before marketing itself as an income opportunity in developing economies?