Token Revolution: The Evolution from Single Attribute to Hybrid Model

The development speed of the cryptocurrency asset world is astonishing. From the emergence of blockchain and cryptocurrencies, to the explosion of NFTs, and now to the rise of semi-fungible tokens (SFT) and the emerging ERC-404 standard, each step is redefining the meaning of digital ownership. For many investors and developers, understanding these different token types and their practical applications has become an essential course for entry.

Understanding the Nature of Tokens: The Classification of Interchangeability

Before delving into various types of tokens, we need to understand a core concept—the interchangeability of assets.

Interchangeable assets refer to those that can be exchanged with each other on a 1:1 basis. For example, your $1 bill and your friend’s $1 bill, regardless of the condition of the banknotes, always hold the same value. Cryptocurrencies and fiat currencies both belong to this category. This standardization makes transactions simple and efficient.

In contrast, non-fungible assets emphasize uniqueness. Each non-fungible token (NFT) has its own characteristics, scarcity, and value. You cannot exchange two different NFTs at face value, just like you cannot swap a Picasso painting for a Monet painting—despite their market prices being similar, their true values are entirely different.

NFT: Certificates of Digital Ownership

Non-fungible tokens (NFTs) are essentially unique identifiers on the blockchain, ensuring the authenticity and ownership of a digital asset. These assets may include digital artworks, music files, videos, virtual real estate, or in-game items.

Historically, the concept of NFTs predates their market explosion in 2021. As early as 2012, researcher Meni Rosenfeld proposed the idea of “colored coins,” attempting to represent real-world objects on the Bitcoin blockchain. Although this idea was not realized due to Bitcoin’s technical limitations, it laid the theoretical foundation for later NFTs.

The true trajectory of NFT history is as follows:

• 2014: The first NFT “Quantum” was created on the Namecoin blockchain—a pixelated octagon that changes color
• 2016: Internet memes began to be issued as NFTs
• 2017-2020: Ethereum’s smart contract standards facilitated large-scale migration of NFTs to the chain
• The emergence of Cryptopunks and Cryptokitties marked the real start of the NFT market, with the latter even causing congestion on the Ethereum network
• 2021: NFT artworks started appearing in top auction houses, with Beeple’s work breaking price records
• Subsequently, multiple blockchains such as Cardano, Solana, Tezos, and Flow launched their own NFT ecosystems

NFT applications mainly focus on art, gaming, and music, but in theory, any real-world asset can be tokenized into a unique collectible.

SFT: Exploration of Hybrid Attributes

Semi-fungible tokens (SFT) represent a new approach—they can switch between fungible and non-fungible states.

Imagine you purchase a concert ticket. Before the event, this ticket is essentially fungible—you can exchange it for any other seat in the same row. But after the event, the situation changes. The ticket becomes a unique souvenir, carrying memories of attending the concert, and its value is determined by the scarcity and impact of that event. This is how SFT works.

SFTs are created based on Ethereum’s ERC-1155 standard, which cleverly combines features of ERC-20 (fungible tokens) and ERC-721 (NFTs). A single smart contract can manage multiple SFTs, offering much more flexibility than the “one contract, one token” model of ERC-721. In practical applications, this means lower transaction costs, faster transaction speeds, and less network load.

Currently, SFTs are mainly used in blockchain gaming ecosystems. Game developers can create assets that are both tradable and unique, better controlling the game economy. However, experts generally believe that the application prospects of SFTs extend far beyond gaming.

ERC-404: The Emergence of a New Standard

The recently proposed ERC-404 standard aims to further advance this integration. Proposed by anonymous developers “ctrl” and “Acme,” ERC-404 seeks to incorporate all functions of ERC-20 and ERC-721 into a single token.

This means that the same token can perform as a fully interchangeable asset in some scenarios, or have completely unique characteristics in others. This flexibility enhances the liquidity of NFTs and addresses the lack of depth in traditional auction models.

However, ERC-404 has not yet passed the formal process of Ethereum Improvement Proposal (EIP). This has sparked discussions about security and potential risks, including the possibility of market manipulation and unforeseen vulnerabilities in smart contract logic. Nonetheless, projects like Pandora and DeFrogs have already begun exploring this new standard, demonstrating strong market interest in innovative token models.

Standard Comparison: ERC-721 vs ERC-1155 vs ERC-404

Advantages and Limitations of ERC-721

As the standard protocol for NFTs, ERC-721 allows developers to add advanced features such as certification and provenance tracking. But it has obvious drawbacks: each transaction can only send one NFT. Sending 50 NFTs requires 50 separate transactions, which is time-consuming and can lead to network congestion and high Gas fees.

Multiple Advantages of ERC-1155

ERC-1155 (multi-token standard) solves this problem. It allows a single smart contract to support multiple SFTs, significantly reducing transaction costs. More importantly, it introduces the concept of revocable transactions, reducing the risk of asset loss due to operational errors.

The Innovative Potential of ERC-404

ERC-404 pushes this flexibility to a new level. Tokens can dynamically behave as fungible or non-fungible assets depending on the use case, while maintaining high liquidity. This opens up entirely new possibilities for the digital asset market.

Practical Application Comparison

New Opportunities for Tokenizing Real Assets

SFT technology demonstrates unique value in the field of real-world asset tokenization (RWA). It can divide indivisible real assets (such as real estate or artworks) into initial fungible ownership shares, which can then transition into non-fungible assets under certain conditions.

This approach offers several key advantages: lowering investor entry barriers, enhancing liquidity of traditionally illiquid assets, encoding rights and obligations, and meeting regulatory requirements. In other words, SFTs are opening a door to a more democratized investment world.

Outlook: The Future of Token Standards

From the theoretical concept of “colored coins,” to the market boom of NFTs, and now to the innovative exploration of SFT and ERC-404 standards, the evolution of token technology clearly reflects the deepening of blockchain applications.

NFTs will continue to dominate the art, gaming, and metaverse sectors, while SFTs are expanding into new application boundaries. The emergence of standards like ERC-404 indicates that we are entering a more flexible and efficient era of digital assets.

Whether content creators, game developers, or traditional asset holders, blockchain token technology is providing unprecedented opportunities—interacting with markets more directly, proving ownership more transparently, and creating value in more innovative ways.