ERC-404 by Ethereum: What does it Address?

In the Ethereum ecosystem, the ERC standard plays a crucial role in the development of decentralized applications (dApps). These standards ensure the compatibility and effective operation of smart contracts. ERC-404 is a fantastic new standard that promises to address issues of scalability and security while bringing significant improvements to smart contracts. 

Overview of the ERC Standards 

Ethereum is not just a blockchain but also a platform for decentralized applications through smart contracts. The ERC standard is designed to ensure compatibility between smart contracts.

• ERC-20: For alternative tokens such as Wrapped Bitcoin. (WBTC). Tokens that comply with this standard are interchangeable. 
• ERC-721: Represents non-fungible tokens. (NFT). Each token is unique and cannot be exchanged on a one-to-one basis. 

ERC-404 combines the characteristics of the two aforementioned standards and represents a sellable fungible token, allowing certain non-fungible assets to be traded as fungible tokens, while still preserving the fundamental uniqueness of the digital asset. This standard opens up new possibilities for flexible applications such as fractional ownership of real estate and gaming assets on the blockchain.

Related content: What is Ethereum ERC20?

What is ERC-404?

ERC-404 is a new standard in the Ethereum ecosystem developed by two anonymous developers, 'ctrl' and 'Acme'. This standard combines the functions of ERC-20 and ERC-721 tokens and introduces the concept of "semi-fungible tokens." This allows users to own a fraction of a unique NFT, opening up new possibilities for owning and trading digital assets. 

ERC-404 addresses the challenges of scalability and security in Ethereum by providing a more efficient way to manage data through smart contracts. This standard leverages advanced memory management and data compression techniques to improve performance and reduce transaction costs, while enhancing the security of smart contracts through advanced security mechanisms. 

Although ERC-404 is still in the testing phase, it is attracting attention for its flexibility and wide applicability, especially in improving liquidity for NFTs and enhanced DeFi applications.

How does ERC-404 work?

To understand ERC-404, you need to grasp how smart contracts operate on Ethereum. Smart contracts on Ethereum are pieces of code that are executed automatically when certain conditions are met. However, the increase in trading volume means that the execution of contracts becomes longer and more costly. ERC-404 streamlines this process by using smart contracts to manage the sharing and ownership of NFTs. Each ERC-404 token represents a specific part of the NFT, and the total supply reflects the quantity of each part available. 

Instead of storing all data on the blockchain, ERC-404 uses data compression techniques and memory management to enhance performance and reduce transaction costs. The highlight of ERC-404 is its ability to combine ERC-20 and ERC-721 tokens. Users can purchase NFT parts in the form of tokens, and after accumulating enough, they can "burn" the tokens and receive the entire NFT back. 

The "mint and burn" mechanism helps increase the liquidity and accessibility of the NFT market. In DeFi applications, ERC-404 supports safer and more accurate transaction management. Security mechanisms such as multi-layer authentication and automated error checking help minimize security risks and optimize application development costs.

Advantages and Disadvantages of ERC-404

Every standard has its own strengths and limitations, and ERC-404 is no exception. Below are the key advantages and disadvantages of ERC-404, providing you with a comprehensive overview of its various aspects.

Advantages

• Flexibility and functionality: ERC-404 allows for the customization of token attributes and supports various use cases such as DAOs and complex blockchain projects. 
• Interaction capability: ERC-404 integrates with the existing Ethereum infrastructure, including smart contracts and dApps, facilitating integration into the current blockchain ecosystem. 
• Fractional ownership: ERC-404 allows for fractional ownership of high-value assets such as real estate and NFTs, enhancing liquidity and expanding access for investors. 
• Enhanced security: This standard integrates security mechanisms such as multi-signature and requires multiple parties to approve transactions, helping to reduce fraud risk and protect digital assets. 

Disadvantages

• Technical complexity: ERC-404 introduces significant complexity in implementation and management, requiring extensive knowledge of smart contract programming and blockchain. 
• Limited support: As a new standard, ERC-404 has not yet been widely adopted in the Ethereum community, which may result in a lack of documentation and development tools. 
• Compatibility: The implementation of ERC-404 may have compatibility issues with other ERC standards or existing dApps, requiring adjustments to your code and contract structure.

Application of ERC-404

ERC-404 has many potential applications across various industries. 

• Decentralized finance (DeFi): ERC-404 can be used in decentralized finance (DeFi) to develop complex financial products that allow for fractional ownership of assets and enhance liquidity. 
• Real estate: This standard has the potential to revolutionize real-world assets (RWA) and the real estate industry by breaking down assets into smaller units and helping investors access the market more easily without having to purchase the entire asset. 
• Art and Collectibles: ERC-404 allows for the tokenization of artworks and collectibles by dividing ownership into smaller parts, thereby expanding access and investment opportunities. 
• Online games and virtual assets: In GameFi, ERC-404 can represent ownership of a portion of in-game items or virtual assets, enhancing the gaming experience and allowing players to buy, sell, and trade valuable items. 
• Enterprise applications: This standard can also be used to build internal control systems such as supply chain management and customer data tracking.

The future of ERC-404

Although ERC-404 is still new, it shows great potential to become an important part of the Ethereum ecosystem. This standard will not only improve the way we interact with digital assets but also usher in a new era of asset management and transactions thanks to the flexibility and innovation it brings. 

ERC-404 can be combined with other ERC standards to develop advanced dApps and improve liquidity in areas such as DeFi and NFTs. When a standard undergoes official validation and supporting tools are developed, the application of that standard will become easier. The integration of ERC-404 into existing projects and new applications opens up many new opportunities for innovation in the field of blockchain and digital finance.

ERC-404 and its Role in Enhancing the Ethereum Ecosystem

ERC-404 is a promising standard in the Ethereum ecosystem that brings numerous improvements in performance and security for smart contracts. Although ERC-404 is still new and not widely used, it has great potential to shape the future of dApp and blockchain applications. Understanding ERC-404 will help developers better leverage the opportunities it offers while contributing to the overall development of blockchain technology. 

To optimize the deployment and management of digital assets according to the ERC-404 standard, you should consider using powerful support tools like Bitget Wallet. Bitget provides a safe and efficient platform for storing, managing, and trading Ethereum-based tokens, making it easy for developers and users to integrate and utilize the ERC-404 functionality.

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