The cryptocurrency industry is still new. Every now and then a new concept is created that can revolutionize the world of modern finance. Recently, a new Ethereum token standard called ERC404 was created, which aims to combine ERC20 tokens with the uniqueness of NFTs.
Token standards
Since Ethereum is a fully open development environment, anyone can create a token with any features they want. At the beginning of its history, the project's creators established the ERC20 token standard, which is still widely used today. Thanks to this standard, it has become possible to create decentralized applications capable of using and integrating all ERC20 tokens.
There are also other standards. ERC-721 is the standard for NFT tokens. They have the same transfer properties as ERC20, but each token is unique, so that many such individual tokens can have different properties and characteristics. While this is a great solution for creating uniqueness in terms of NFT collections, it comes with many problems, mainly related to the exchange of these tokens. For example, there is no good solution for selling NFTs on a decentralized market.
ERC404
This is where ERC404 tokens come in, all in white. They aim to fill the gap between ERC20 and ERC721. This standard was created by Pandora, a new experimental project. Owning 1 PANDORA token allows the user to mint 1 “Replica” NFT. This token and the NFT in question are linked to each other. Selling the token means burning the NFT.
This is a difficult concept to understand at first. Essentially, this means that each token is inherently linked to an NFT and these tokens or parts of them can be traded on regular decentralized exchanges.
Importantly, however, the standard has not yet undergone a rigorous security audit, which means that everyone uses it at their own risk.
ERC404 is an extremely interesting experiment. The only question is whether it was successful. The standard is still very new and therefore has not yet been properly proven for safety and value. Time will tell whether ERC404 becomes a popular new token standard, but this is exactly the type of open innovation blockchain is all about.
