Fungible, in the context of cryptocurrency and blockchain technology, refers to assets or tokens that are interchangeable and hold equal value with one another. Derived from the Latin verb “to perform,” the term highlights the ability of these assets to be exchanged or replaced with similar items without losing value or functionality.
In blockchain, fungibility pertains to the characteristic of tokens that can be divided or exchanged equivalently with other tokens of the same type. For example, one Bitcoin or Ether is always equivalent in value to another Bitcoin or Ether, respectively, making them fungible assets. This property is crucial for cryptocurrencies to function effectively as a medium of exchange in digital transactions.
Fungible tokens, such as those following the ERC-20 standard, are used in various applications within the blockchain ecosystem. They can serve as mediums of exchange, units of account, or stores of value. Unlike non-fungible tokens (NFTs), which are unique and cannot be exchanged on a like-for-like basis, fungible tokens are identical to each other and can be used for standard financial transactions, trading, and investment purposes.
The concept of fungibility is not limited to digital assets but has been a fundamental aspect of traditional financial systems, where currencies and commodities like gold or oil are considered fungible due to their ability to be traded in equal quantities. Fungible assets are essential in creating liquidity and efficiency in both traditional and digital markets.