"The objective of this research is to understand how a metabolic system undergoing natural selection can transform into a template-based system undergoing natural selection. This is an example of an early major transition in evolution. Answering this question will contribute to our understanding of the origin of life, the self-referential nature of embodied evolution, the evolution of evolvability, evolutionary algorithms in engineering, and combinatorial chemistry. We build upon our published papers on natural selection at the extremes: evolution of complex metabolic organizations by natural selection; and the evolution of non-enzymatic template replicators. We build a model that can bridge the gap between our previous two models. A new algebraic representation describes an abstract chemical structure to function map that can represent the behaviour of both autocatalytic metabolities undergoing macromutation, and nucleotide based templates undergoing micromutation. This unified model can then be simulated and explored to understand the transition from limited to unlimited heredity. We test the hypothesis that second-order selection (i.e. selection for variability properties) acting on metabolic organizations enclosed in compartments was the driving force for the evolution of nucleotides. Although the work is a natural and well-defined extension of our previous results, we believe it will produce the first model of a physically embodied evolutionary algorithm capable of open-ended evolution."