A good or asset’s fungibility refers to its capacity to be exchanged for other similar goods or assets on an individual basis. As fungibility implies equivalent value amongst the assets, fungible assets streamline the exchange and trading processes.
For instance, a pound of pure gold is equivalent to every other pound of pure gold, regardless of shape. Commodities, fiat money, bonds, precious metals, and virtual currencies are more examples of fungible asset classes.
However, swapping two identical units in an equivalent amount of a fungible item is not always required. A transaction can be regarded as an equal exchange as long as it takes place between instruments of the same type and functioning. For instance, five one-dollar bills can be used in place of one five-dollar bill, and both have the same value. In this instance, the US dollar serves as a fungible asset, and the bills are only a representation of its intrinsic value.
The majority of cryptocurrencies are generally regarded as fungible assets. For instance, Bitcoin is fungible because each unit of BTC is equal to every other unit, which means they are all of the same caliber and functionality.
