Fungibility is the property of a good or asset whereby individual units are mutually interchangeable, each unit being indistinguishable from and equal in value to any other. It is a defining characteristic of money and of fungible blockchain tokens, in which any one token of a given type can substitute for another. Fungibility contrasts with non-fungibility, where each unit is unique and not interchangeable, as in non-fungible tokens.
Overview
- Fungibility is what allows a unit of value to function as money or as a liquid traded asset: because units are interchangeable, they can be pooled, divided and exchanged without tracking individual provenance. On blockchains, the distinction between fungible and non-fungible tokens is encoded directly in token standards — fungible standards such as ERC-20 treat balances as undifferentiated quantities, while non-fungible standards assign each token a unique identifier. Fungibility can be weakened in practice when tokens carry traceable transaction history, prompting privacy-preserving designs.
Key aspects
- Interchangeability: any unit substitutes for any other of the same type.
- Divisibility and aggregation, allowing units to be split and pooled freely.
- Uniformity of value, with each unit equal to every other.
- Encoding in token standards such as ERC-20 for fungible tokens.
- Practical erosion through traceability, motivating privacy-enhancing techniques.
Applications
- Cryptocurrencies and stablecoins functioning as interchangeable media of exchange.
- Fungible token standards underpinning decentralized-finance liquidity pools.
- Commodity and currency markets where units trade as equivalents.
- Contrast with non-fungible tokens for unique digital assets and collectibles.