NFT: Non-Fungible Token
NFTs (Non-Fungible Tokens) introduce scarcity into crypto markets. They can take different forms. Such as 1 of 1, think a digital picture similar to a painting in the art world, or 1 of N. Think PFP (Profile Picture) projects like CryptoPunks.
There are only 10,000 CryptoPunks, making them scarce relative to more traditional cryptoassets with supplies in the millions. Each CryptoPunk is also different and therefore Non-Fungible. Where as traditional cryptoassets like Ethereum are fungible, every ETH is designed to be interchangeable with every other ETH. In contrast some CryptoPunks are rarer and more valuable than others based on their individual characteristics.
Non-Fungible Tokens were initially issued via the ERC-721 standard on Ethereum with CryptoKitties being the first project to leverage this capability. As use cases for NFTs grew and expanded, ERC-1155, was developed to issue semi-fungible items. Think swords in an on-line game.
You may want to limit the number of a certain sword in a game to 10,000. These 10,000 swords can be the same though, versus a PFP project were all 10,000 need to be different.
Looking forward NFTs could prove a critical element of metaverse adoption. Being able to purchase and use an item like a sword in one blockchain game. Then transfer and use it in another blockchain game.
Adds a layer of flexibility not present in traditional gaming. Where items are typically limited to being used in the game and platform they are purchased on.