Fungibility

Fungibility describes the property of an asset whose units of equivalent value are readily interchangeable with one another.

What Is Fungibility in Crypto?

In cryptocurrency, fungibility means that each unit of a particular coin or token is identical to and interchangeable with any other unit of the same cryptocurrency. This quality makes transactions straightforward since users don’t need to evaluate each coin differently.

Think of fungibility like this:

If you lend someone a $5 bill, you don’t care which specific $5 bill they return to you. Similarly, if you send someone 0.1 Bitcoin, it doesn’t matter which specific 0.1 Bitcoin they might send back. That’s because dollars and Bitcoin are both examples of fungible assets.

Despite their interchangeability, cryptocurrencies are inherently traceable, meaning that every token’s transaction history can be retraced via its blockchain. However, a digital asset’s traceability doesn’t affect its fungibility.

A lack of divisibility in a digital asset makes it non-fungible. Examples of non-fungible assets include real estate and collectibles.

In crypto, non-fungible tokens (NFTs) are unique assets that cannot be readily interchanged with another asset. Each NFT derives its value in part from its unique traits and level of rarity. While fungible tokens like Bitcoin and Ethereum can store value, NFTs represent ownership data of an asset. This means that NFTs use blockchains to link or prove a connection to unique digital items, such as artworks, tokenized real-world assets (RWAs), and intellectual property (IP).