Fungible

What Is Fungibility?

Fungibility is the ability of a good or asset to be interchanged with other individual goods or assets of the same type. Fungible assets simplify the exchange and trade processes, as fungibility implies equal value between the assets.

Deeper Definition

Fungibility is the ability of a good or asset to be readily interchanged for another of like kind. Goods like owned cars and houses are non-fungible. Money is a prime example of something fungible, where a $1 bill is easily convertible into four quarters or ten dimes.

Fungible goods are mutually substituted; for example, specific grades of commodities, such as No. 2 yellow corn (which is one of many species of corn), are fungible because it does not matter where the corn was grown; all corn designated as No. 2 yellow corn is worth the same amount. Commodities, common shares, options, and dollar bills are all examples of fungible goods. So money is a good type of fungible.

For instance, because individual diamonds have different cuts, colors, sizes, and grades, they are not interchangeable, so they cannot be referred to as fungible goods. Real estate is never genuinely fungible. Even on a street of identical houses, each house experiences different levels of noise and traffic is in varying states of repair; and has unique views of surrounding areas.

Although cryptocurrencies are generally considered fungible assets, some are unique and not interchangeable (e.g., non-fungible tokens [NFT]). Fungible cryptocurrencies represent the overwhelming majority of tokens on the market. Fungible tokens are digital assets built so that each token (or fraction of a token) is equivalent to the next.

For example, fiat money is fungible as $20 notes interchangeably with all other (real) $20 notes. Similarly, one Bitcoin is equal to one Bitcoin, and it’s equal to all other Bitcoin currencies.

This makes fungibility essential to the concept of currency, whether it be crypto or otherwise.

Fungible Example

Paul owns 2 BTCs, and he needed to swap it for 1 BTC in two wallets. His friend operated on two apps and decided to swap 2 BTC with his two wallets, which was successful. The Bitcoin swapped holds the same value, despite having come from different wallets. This illustrates fungibility.