ERC-404 Unlocks Hybrid Features For NFTs

Posted on by Werner

Non-fungible tokens (NFTs) on Ethereum exploded in popularity during 2021’s bull run, driven by record sales of flagship projects like CryptoPunks, Bored Ape Yacht Club, Azuki and Moonbirds, and artists like Beeple. However, the dominant ERC-721 and ERC-1155 standards for NFTs have some limitations that have seen the crypto collectibles market crater after NFT prices came crashing down in 2022 and 2023. 

A new token standard called ERC-404 that aims to revolutionize NFTs with new features and improvements has captured the imagination and buy-in of NFT degens, and its earliest associated projects like Pandora are soaring in value. While it’s early days and the standard remains unaudited, it offers an innovation that could provide a massive shot in the arm for NFT trading and collectibility. 

In short, that’s because ERC-404 has hybrid features that combine the best of both cryptocurrency and NFT technology to create a new digital asset that enables fractionalized NFT ownership. Let’s jump in. 

What is ERC-404?

ERC-404 is a proposed new token standard for NFTs on Ethereum. It builds on the existing ERC-721 standard by adding functionality specifically for NFTs. The standard is currently still under development but shows enormous promise.

The ERC-404 standard opens the door to ‘dynamic NFTs’. Unlike regular NFTs, which have static content, ERC-404 NFTs can change and evolve over time. This unlocks entirely new use cases and possibilities.

For example, ERC-404 NFTs could represent characters in games that gain experience and evolve. Or they could represent dynamic digital artworks that change based on external data feeds. The possibilities are endless.

Why ERC-404 is an NFT Gamechanger

ERC-404 represents the cutting edge of innovation in the NFT space. Here’s how: 

1. More Flexibility & Use Cases

The dynamic nature of ERC-404 completely reimagines what an NFT can represent. Traditional NFTs have been quite limited and mostly focused on digital art. ERC-404 blows the doors wide open for NFT utilities and use cases.

2. Native Interoperability

ERC-404 NFTs can interconnect with other smart contracts and protocols. This makes them far more extensible and interoperable than regular NFTs. 

For example, a dynamic NFT character could directly integrate with a battle game dApp. The possibilities for creativity are endless.

3. Improved Functionality

The standard defines various new functions to manipulate and evolve ERC-404 NFTs over time. This extends to things like changing metadata, upgrading visuals, attaching tokens, and more.

This improved functionality brings NFTs far closer to representations of real-world items and makes them compatible with DeFi.

How ERC-404 NFTs Work

The ERC-404 standard upgrades NFTs in two major ways: evolution and interoperability. 

‘Evolution’ refers to the ability for the NFTs to change attributes over time, like gaining experience or changing visual representations. The logic governing these evolutions is handled by a separate ‘Engine’ smart contract.

‘Interoperability’ refers to the ability to directly integrate the NFTs with other external smart contracts like games, marketplaces, etc. This could add in-game things like HP, SP, inventory slots, and more directly in the NFT token itself.

Example: Pandora and Replicants

The Pandora NFT collection has 10,000 unique digital collectibles called Replicants hosted on the Ethereum blockchain. Each Replicant acts as both an NFT and a crypto token. 

Owning a Replicant token lets you trade it on decentralized exchanges like Uniswap. You can buy as many tokens as you want – each one equals a fraction of a Replicant NFT. This makes the NFTs more affordable and liquid.

When you’re ready, you can redeem your Pandora tokens for the actual Replicant NFTs. The more tokens you have, the more NFTs you can claim. You can also choose to keep some tokens and redeem others. This makes Pandora more flexible for investors.

The key idea is that Pandora links NFT collectibles and crypto tokens together in a new way. This combines the scarcity of NFTs with the liquidity of tokens and has seen the value of Pandora tokens shoot up from $4,3000 to over $26,000 during the last seven days on CoinMarketCap.

Impact on NFT Trading & Liquidity 

ERC-404 is set to completely transform NFT trading, thanks to dynamic NFTs being more liquid. Whereas traditional NFTs tend to be static and illiquid once purchased, ERC-404 builds in interoperability and evolution by design.

This interoperability and upgradability make ERC-404 NFT markets far more dynamic and liquid compared to legacy NFTs. Traders can speculate on NFT evolutions, upgrades, integrations, and more.

Another benefit is the ability to use dynamic NFTs directly in other DeFi protocols via built-in interoperability. For example, putting them up as collateral for loans, depositing them in yield farms, and more.

Credit: Tesfu Assefa

Exciting ERC-404 Projects Already Underway

While ERC-404 is not launched officially yet, teams are already building out exciting projects on the standard, including:

  • DynamicPunks – Algorithmically generated evolving punks.
  • SmartChar NFT RPG – Customizable RPG character NFTs that level up.
  • NFTfi Guild – DeFi/NFT hybrid for asset management. 

(Please note these are not in any way endorsements of these experimental projects. Please do your own research.)

And many more projects are on the way. The community excitement for ERC-404 is enormous given its vast potential, but it’s important to do your due diligence and ensure you don’t open yourself up for rugpulls or phishing that could drain your wallet. Be very careful with which protocols you interact with. 

Final Thoughts

The introduction of ERC-404 marks a significant turning point in the NFT marketplace, promising to catalyze a shift towards greater mainstream adoption by boosting accessibility and liquidity. 

This innovative token standard is set to bridge the existing divide between fungible and non-fungible tokens, thereby facilitating a more fluid exchange across decentralized exchanges (DEXs), NFT marketplaces, and decentralized finance (DeFi) platforms. 

Moreover, ERC-404 paves the way for groundbreaking functionalities within the NFT space, including leverage trading, options contracts, and novel avenues for Metaverse interoperability and composability. These advancements can help to further integrate the NFT sector with the broader digital economy.

However, the advent of ERC-404 has its challenges and considerations. Among its most notable advantages are improving NFT liquidity and lowering the barriers to entry for investing in high-value NFTs. ERC-404 also promises to usher in new business models for NFT platforms, crucial for the market’s future, offering a more inclusive and dynamic ecosystem for creators, investors, and collectors alike.

Conversely, the ERC-404 standard raises several concerns that warrant attention. The code underlying ERC-404 has not undergone extensive auditing. It could potentially have undiscovered vulnerabilities, particularly in the mechanism for burning linked NFTs. This introduces a layer of complexity in wallet management and poses questions regarding the regulatory landscape surrounding these innovations.

This might do little to stem the rise of ERC-404, as adoption accelerates. NFT marketplace Blur quickly jumped on the bandwagon, and Telegram bot Banana Gun and new decentralized social media hotshot Farcaster are all implementing it. And new projects are shooting up on other chains like Bitcoin, Solana and Arbitrum.

The next 12 months promises to yield even more innovative applications of the ERC-404 standard across DeFi, gaming, Metaverse and other spaces. This hybrid standard opens up a whole new realm of possibilities for non-fungible tokens, setting them up for a seismic 2024. 

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Tokenized Warfare: Cryptocurrency in Conflict Zones

Posted on by SB Fisher

War is good for absolutely nothing. Yet the reality is that at this very second there are conflicts raging that disrupt and destroy the lives of millions. It’s against this dark background that crypto has found a morbid use-case, to channel funds freely to various entities that are prosecuting violence against others, and a way for resistance fighters to access funds. As a way to continue some semblance of normality. 

It’s hard to bank when your bank has become a bunker. When the systems-architecture of a country disintegrates under the horrors of war, the financial system is often the first to break. Cryptocurrency, a standalone system of transactions, accounting and payments that’s uniquely resistant to the shocks of the real world, is a perfect, and now prevalent, candidate to get the money to where it’s needed most.

Crypto is censorship resistant. If an oppressor switches off its citizens’s access to money, crypto allows them to continue as they were. Crypto has superb remittance capabilities. A transaction doesn’t care if you’re in Tulsa or Timbuktu – the price is the same. Crypto is also pseudo-anonymous. An agent who is persona non grata to the traditional financial system, dominated as it is by powerful Western countries, can still operate and receive funds. Jurisdictions that traditionally struggle with access to banking and which are major conflict zones top the charts for Bitcoin searches.

You mean crypto is funding terrorism!? That’s appalling! Well yes, it is – depending on what you define as a terrorist. It’s far beyond the scope of this tech junkie to comment on who is a freedom fighter and who is a terrorist, who is right and who is wrong, on each and every one of the world’s multifarious conflicts, just to note that a decentralised ledger doesn’t care who you are. It just works – no matter the situation, and it works both ways. 

Crypto has provided enormous humanitarian relief to those in conflict zones. Citizens fleeing Ukraine have been beneficiaries of extensive crypto donations, and the Ukrainian government has received $0.225 billion in its fight against the Russian invasion. Similarly, Russian-financiers frozen out of traditional payment rails due to sanctions have resorted to using crypto to finance their campaign, and Hamas has received plenty of funding through the Tron network. Crypto continues its use-case of being an out-of-context asset – booming in times of trouble.

Credit: Tesfu Assefa

So, is crypto a tool of liberation or of oppression? Should the Powers That Be choose to blacklist a certain nation or entity, crypto provides an easy way for that entity to continue its machinations. For Ukrainians and Palestians and Houthis and whoever else feels oppressed, crypto provides a lifeline of financial and banking access when the rest of their world falls apart.

To many, crypto’s use in war-financing is yet another black stain on its reputation, a further stamp of its association with the illicit, the illegal, and the lethal. The ledger has no morality, and it is not under the control of any moral arbiter, any centralised power. That is its very purpose. It’s easy to condemn crypto when you’re on the side of the would-be moral arbiter. 

Yet you never know when the tables may turn, when suddenly you find yourself on the wrong side of history – as millions do all over the world daily, sometimes surprisingly – and you need a way to continue your life. ‘Commit a crime and the earth is made of glass.’ Such a reality is alien until it happens to you. Crypto remains on your side even when the institutions militate against you.

Systems are fragile. Authorities change. The ledger is eternal. So, although crypto is buying guns used to kill people, equipping terrorists, and fueling tanks marching across borders, it is also doing the opposite. Buying crucial aid, giving the unbanked a system of money, and putting food in the mouths of the desperate, and medicine in the hands of the dying. The ledger is not evil, we are. At least with a decentralised ledger, no one gets to choose which side is which.

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