From ERC-1155 to ERC-404: Understanding the Differences Between NFTs and SFTs in Token Standard Evolution

The development speed of the blockchain world is overwhelming. Following Bitcoin and Ethereum, the emergence of NFTs sparked the first wave of attention, and now the emerging token category—Semi-Fungible Tokens (SFT)—is vying for market focus. For many, the concept of NFT remains familiar, but the logic behind SFT may still seem unfamiliar. This article will delve into the fundamental differences between these two tokens and how they are changing the future of digital assets.

Starting from the Basic Concepts of Fungibility and Non-Fungibility

To truly understand NFTs and SFTs, it is essential to grasp the core concept of asset fungibility.

Fungible assets refer to assets that can be exchanged without difference on a 1:1 basis. The most straightforward example is fiat currency. A 100 yuan banknote in your hand, whether brand new or wrinkled, has the same value and can be seamlessly exchanged for another 100 yuan note. Cryptocurrencies also fall into this category—one Bitcoin is always equal to another Bitcoin.

Non-fungible assets are entirely different. These assets each have unique characteristics and cannot be exchanged on a like-for-like basis. Imagine two collectible coins, even if they have the same face value, their actual worth may differ greatly due to differences in minting year, rarity, or historical background.

These two asset types have their respective application scenarios, and the innovation of NFTs is based on the non-fungible nature.

NFT: The Revolution of Digital Ownership

Non-fungible tokens (NFTs) are unique digital identifiers on the blockchain. They represent ownership of a distinct digital asset, which can be digital art, music, videos, game items, or even virtual real estate. The key feature of these tokens is—they are non-interchangeable.

Two seemingly identical NFTs can have vastly different values due to rarity, origin, creative value, and market recognition. Even if priced the same on the open market, they represent entirely different assets.

NFTs emerged largely to protect the rights of digital creators. Artists, musicians, and game developers can use NFTs to ensure the authenticity and ownership of their works, thereby obtaining fair economic returns without worrying about piracy.

The Development Timeline of NFTs: From “Colored Coins” to Market Explosion

Many believe NFTs are a product of 2021, but in reality, their history is much longer.

2012, developer Meni Rosenfeld first proposed the concept of “Colored Coins” in an article, attempting to mark and manage real assets on the Bitcoin blockchain. Although this idea was not realized due to Bitcoin’s technical limitations, it laid the theoretical foundation for NFTs.

2014, the first truly significant NFT work, “Quantum,” was created—a pixelated octagon that changes color and contracts like an octopus. Its creator, Kevin McCoy, minted it on the Namecoin blockchain.

2016-2017, NFTs began to gain small-scale popularity. Meme images from internet culture were turned into NFTs, and the Rare Pepes series gained attention. During the same period, Ethereum’s smart contract standards (especially ERC-721) matured rapidly, and NFTs started migrating in large numbers to this more powerful blockchain.

Key projects such as Cryptopunks and Cryptokitties emerged, igniting market enthusiasm. Cryptokitties caused network congestion on Ethereum in 2017, demonstrating the real appeal of NFTs.

2020-2021, the NFT ecosystem exploded. Virtual real estate and metaverse assets saw surging demand, and renowned art auction houses began accepting NFT art. Beeple’s digital artwork sold for record prices, fundamentally changing perceptions of “digital asset value.”

Besides Ethereum, blockchains like Cardano, Solana, Tezos, and Flow actively developed their NFT ecosystems. Meta (formerly Facebook) rebranded and invested heavily in the metaverse, further promoting NFTs as virtual assets.

Practical Application Fields of NFTs

Currently, NFTs are mainly concentrated in three areas: gaming, art creation, and music industry. However, in theory, any real-world asset can be tokenized into collectibles, with application potential far beyond these three industries.

Semi-Fungible Tokens (SFT): A Flexible New Choice

If NFTs are entirely non-fungible, then Semi-Fungible Tokens (SFT) are a hybrid—they can flexibly switch between fungible and non-fungible states.

SFTs start as exchangeable. Many SFTs are created with fungible characteristics, allowing them to be exchanged 1:1 like cryptocurrencies. However, once used or meeting certain conditions, they transform into unique, non-fungible assets with personalized value.

An intuitive example: Suppose you buy a concert ticket. Before the event, the ticket is fungible—you can exchange seats with other ticket holders in the same row without changing its value. After the concert, the ticket no longer has exchange value but becomes a unique souvenir. It shifts from a tradable item to a personal collectible, with value depending on the rarity and fame of the concert.

SFTs are typically based on Ethereum’s ERC-1155 standard. Unlike ERC-20 (which manages fungible tokens) and ERC-721 (which manages NFTs), ERC-1155 allows a single smart contract to manage multiple token types, including both interchangeable and non-interchangeable tokens.

Technical Foundations and Current Applications of SFTs

SFTs adopt the ERC-1155 standard, a relatively new protocol standard. Currently, SFTs are mainly applied in blockchain gaming ecosystems. In games, equipment, currencies, and items can serve as both exchange media and as converted into unique assets tied to player identities.

This flexibility opens new possibilities for game economies. Developers can better control economic flows and prevent issues like unchecked inflation common in traditional MMORPGs.

ERC-404: An Experiment to Break Boundaries

In 2024, a new token standard, ERC-404, sparked discussion in the Ethereum community. Proposed by anonymous developers “ctrl” and “Acme,” this standard attempts to further blur the lines between fungible and non-fungible tokens.

ERC-404 allows tokens to switch identities flexibly under different conditions—trading like regular cryptocurrencies or existing as fractional ownership of NFTs. Theoretically, this can address liquidity issues of traditional NFTs, as users can trade partial ownership rather than the entire asset.

However, importantly, ERC-404 has not yet passed the Ethereum formal improvement proposal process (EIP). It lacks formal security audits and academic analysis, which introduces risks. Projects like Pandora and DeFrogs have begun experimenting with this standard, but users should be fully aware of potential risks, including smart contract vulnerabilities and “rug pulls.”

Parallel Comparison of the Three Standards

ERC-721: The Infrastructure of NFTs

ERC-721 is the mainstream standard for NFTs, covering most existing NFTs in the market. It clearly defines the properties of non-fungible tokens, allowing creation, trading, and verification of authenticity.

Advantages: Developers can add specific metadata and verification mechanisms to each token, reinforcing its uniqueness.

Disadvantages: Each transaction transfers only one NFT. To send 50 NFTs, 50 separate transactions are needed, leading to network congestion and high gas fees.

ERC-1155: An Advanced Multi-Function Solution

ERC-1155 supports multiple token types (both fungible and non-fungible) within a single contract, solving many issues of ERC-721.

For fungible tokens, ERC-1155 introduces options for recyclable transactions, allowing recovery even if sent to the wrong address. For non-fungible tokens, batch processing of multiple transactions significantly reduces gas costs and network load. This makes SFTs more economical and flexible.

ERC-404: The Collision of Ideal and Reality

ERC-404 aims to create a fully hybrid token model—tokens automatically switch between fungible and non-fungible states based on scenarios. This opens new application possibilities, especially for addressing NFT liquidity issues.

But it comes with complexity and risks. Since it has not undergone formal audits, its security remains uncertain.

Comparing the Working Mechanisms and Applications of NFT and SFT

Fundamentally, the differences between NFT and SFT are reflected in the following aspects:

Working Principles: NFTs operate on the blockchain (mainly Ethereum), with each token having a unique identifier and metadata. Once minted, NFTs cannot be duplicated, ensuring authenticity. SFTs are more complex— the same token can serve as a circulation medium and also transform into a unique asset, with state changes controlled by smart contract rules.

Application Scenarios: NFTs are suitable for digital art, rare game items, virtual real estate, and other fields emphasizing uniqueness and ownership. SFTs are more suitable for scenarios requiring flexibility—such as event tickets (exchangeable before the event, souvenirs afterward), in-game currencies (exchangeable or upgradeable into bound assets).

Market Dynamics: NFT values are mainly driven by rarity and market hype, often traded via auctions or fixed prices. SFT market performance is more dynamic—the same asset can circulate as an exchange medium and be locked as a personalized asset at specific times.

Semi-Fungible Tokens and Real Asset Tokenization (RWA)

With the maturity of blockchain technology, Real-World Asset Tokenization (RWA) has become a new hotspot. In this field, SFTs demonstrate unique value.

High-value traditional assets like real estate, artworks, and commodities are tokenized, enabling fractional ownership through SFTs. For example, a 10 million USD office building can be divided into 1 million units, each tradable as a liquid asset initially, and potentially locked as a specific owner’s asset under certain conditions (long-term holding).

This design improves liquidity of illiquid assets, lowers investment barriers, and allows encoding rights, revenue sharing, and obligations related to real assets, providing new possibilities for compliance and asset tracking.

Looking Ahead: The Future of Tokenization

Asset tokenization is becoming one of the most promising areas of blockchain application. NFTs have already transformed the business logic of the digital creative industry, enabling artists, musicians, and game developers to gain unprecedented ownership and revenue mechanisms.

While SFTs are currently mainly limited to gaming ecosystems, their flexibility hints at broader application prospects—from electronic tickets to equity distribution, from intellectual property management to supply chain tracking. The potential of SFTs remains largely untapped.

Meanwhile, experimental standards like ERC-404 are expanding our understanding of the “digital asset” concept. Despite risks, innovation continues to drive the evolution of the entire ecosystem.

Whether NFT or SFT, blockchain technology is reconstructing the concept of “ownership,” bringing new opportunities to creators, investors, and users. This revolution has only just begun.