How ERC-721 & ERC-1155 Actually Work

NFTs are unique on-chain tokens (often ERC-721, sometimes ERC-1155) whose tokenURI usually points to off-chain metadata/images (commonly IPFS). Smart contracts track ownership and transfers; royalties are mostly platform-enforced (EIP-2981 is proposed, not universal). Marketplaces can aid attribution but KYC is inconsistent, enabling wash trading/AML risks. Legal rights rarely equal full copyright; “ownership” is typically the token + display rights, not the underlying work. DeFi layers let users rent, wrap, stake, or fraction NFTs. Tax treatment varies by jurisdiction (VAT/GST on electronic services; income/capital gains on sales), with enforcement complicated by pseudonymous addresses.