What is Fungibility?
Fungibility refers to a commodity or asset’s capacity to be mutually interchanged with another asset for the same value. For example, a dollar bill is fungible because it can be exchanged for another dollar bill with no impact on the owner. Fiat and cryptocurrency alike are fungible and this allows for coherent trade and exchange within the market.
In this way, fungibility refers to a good’s ability to be traded with another asset at an equal value. For something to be a commodity, it must be considered to be fungible and therefore can be traded in the commodities exchange.
Most cryptocurrencies are fungible. For example, 1 Bitcoin or 1 BTC can be mutually interchanged with another Bitcoin without loss or gain of any value. But not all cryptocurrency assets are fungible. In cryptocurrency, these assets are referred to as NFTs or Non-Fungible Assets.
Fungibility vs. Non-Fungibility
The purpose of fungibility is to allow simplistic and fluid levels of trade that create consistent and predictable market interactions. In contrast, NFTs are assets that cannot be interchanged with other assets without some change occurring to the underlying value of the good.
Art is a good example of an NFT and cryptocurrency NFT artwork is often one of the most commonly traded non-fungible assets. NFTs can be traded and sold but cannot however be interchanged with other identical assets.
OpenSea, Axie Marketplace, and Larva Labs are some of the most popular trading places for NFT crypto assets.