I've been playing around with Floyd–Steinberg dithering in order to achieve more continuous color gradients.
This is slow as molasses of course, and even with optimization I don't think it could be used in a game. But perhaps it could be used in a ray tracer or other, more temporally relaxed image generation applications.
Wow, that's a really nice effect, yeah.
Probably a good starting point as inspiration for folks thinking about more down-to-earth approaches to dithering via sprites; a small set of dithering steps in 8x8 sprites plus some lookup tables for pal() swapping in appropriate steps across several likely gamuts could probably allow for pretty darned fast dynamic dithering of a tiled background or whatever for some pretty if less-flexible effects.
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