NFTs as we know them are expensive pieces of digital art with the use of Cryptocurrency and Blockchain Technology. Rare and popular NFTs such as Crypto Punks and Bored Apes are too expensive for the regular retail buyers. However, that may all change with ERC404 and how we approach NFTs.

What Is ERC404?

An innovation by crypto traders and designers who go by the pseudonyms “crtl” and “Acme”, it takes inspiration from the tech behind the fungible tokens of ERC20 and non-fungible tokens of ERC721. It allows retailers to have ownership of a piece of NFT rather than outright purchasing the entire NFT for a hefty sum of Ethereum. ERC404 has been dubbed as a “semi-fungible token” as it aims for different Web3 wallets own different pieces of the same NFT.

Despite it being dubbed as an “ERC”, the creators will have to go through a process to make it official by getting an approved EIP. According to the creators, he’s looking to get this approved as he believes it is the bureaucratic thing to do.

What can you do with ERC404?

ERC404 changes the playing field when approaching NFTs. Although the NFTs that we love and know are on ERC721, it’s inevitable for the technology to catch up and rival Ethereum’s ERC721. For the meantime, here are a few things that ERC404 can do that ERC721 can’t:

Partial NFT Ownership: ERC404 enables multiple wallets to own the same NFT. This means that a retailer can now purchase a small part of an NFT similar to a Crypto Punk at a smaller cost. As it wouldn’t make sense to call ERC404 NFTs and “NFT”, it would make much more sense to call it an “SFT” for being a semi-fungible token.

Staking and Governance: Staking using NFTs is not something familiar to the crypto space. ERC404 has a built-in mechanism for both staking and governance, allowing holders to stake for rewards and participate in governance and voting on a project’s decision making.

Better Liquidity: ERC404 fixes the liquidity issue of a highly illiquid NFT market. With most NFTs only selling a few NFTs per day, the stagnant market may dissuade retailers from participating in the market. With many retailers being able to participate in the NFT market, liquidity issues may be a thing of the past for the future of NFTs.

What are the Risks And Challenges of ERC404?

ERC404 is a step forward to the world of NFTs, digital art, and virtual real estate. However, there are few problems that the community of ERC404 projects face. Considering that ERC404 is newly exposed to the market and retail use, it’s inevitable for a few tweaks and troubleshooting to be done, especially with security and risk to manipulation.

Security Risks: As with new technologies, security is a top priority that should have little to no margin of error. ERC404 may face compatibility issues with its staking protocols as its new functions and mechanics may not fit with current exchanges, opting to have both ERC404 projects and exchanges to further innovate for its compatibility. Failure to do so may expose some smart contract flaws and code weaknesses that may be exploited by malicious entities.

Prone to Manipulation: ERC404 is meant to be flexible. Its flexibility may pose some risk as tokens may be destroyed or burned. Token destruction could have effects on the value of the tokens beyond only short-term fluctuations. On top of that, it could have an impact on the token's general stability and dependability, which might cause investors to lose faith in it.

In the past few years, the NFT community has taken a huge blow with NFT projects that were eventually rug pulls, lacking in utility, and an overly expensive marketplace that provided little value to its community. ERC404 hopes to fix this by clearing stigmas, mitigating risks, and ensuring that everyone is able to get a piece of the NFT market. Only time and elbow sweat from the community can tell whether NFT technology can make a comeback in the next few years.

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