Crypto glossary
Fungibility
Fungibility is the property that every unit of an asset is interchangeable with any other unit, like one dollar for another; NFTs are the opposite.
An asset is fungible when units are identical for practical purposes: any bitcoin can settle a debt of one bitcoin, any USDC equals any other USDC. Fungibility is a basic requirement for money, because a payee should not have to inspect the history of each coin before accepting it. Token standards reflect this: ERC-20 tokens are fungible, while ERC-721 tokens each carry a unique ID.
In crypto the property is under constant pressure because ledgers are transparent. Coins can be traced back to hacks, sanctioned addresses or mixers, and exchanges may freeze deposits that analytics tools flag as tainted. Recently mined coins with no history, sometimes called virgin coins, have even traded at a premium among some buyers.
Privacy coins such as Monero hide transaction history partly to protect fungibility, and Bitcoin privacy tools pursue the same goal. Regulators see that as a compliance problem. In practice, crypto assets are fungible at the protocol level but not always in the eyes of exchanges and banks.
Example
A trader withdraws BTC to an exchange and the deposit is frozen because some of the coins passed through a mixer two years earlier, even though they are technically identical to any other bitcoin.
Related terms
Latest articles on Fungibility
- Aptos Announces Major Milestone: Fungible Asset Migration Now Live with AIP-63
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