Fungibility refers to the property of an asset or item where each unit is identical and interchangeable with another of the same type or value. In the context of cryptocurrencies, a fungible asset means that each unit has the same value as another, and they are easily exchangeable. For example, one Bitcoin (BTC) is worth the same as another Bitcoin.

Think of fungibility as the concept that one unit of something is exactly the same as another, making it easy to exchange.

• Interchangeability: Fungibility ensures that assets can be easily exchanged, making them useful as a medium of exchange.
• Simplicity: Fungible assets allow for straightforward transactions, as there is no need to worry about the uniqueness of each item.
• Liquidity: Highly fungible assets, like Bitcoin, have high liquidity, meaning they can be quickly bought, sold, or traded without affecting their value.

---

How Fungibility Works:

• Fungible Assets: Assets like cryptocurrencies (Bitcoin, Ethereum) or fiat currencies (USD, EUR) are fungible because each unit holds the same value and can be exchanged equally.
• Non-Fungible Assets: Non-fungible tokens (NFTs) are not interchangeable, as each has unique characteristics, making them valuable as collectible or scarce items.

Why Fungibility Is Important:

• It enables efficient trading and exchanges, where each asset can be easily replaced with another of equal value.
• Fungibility ensures that digital currencies, like Bitcoin, maintain their value and liquidity in the market.
• It simplifies the process of transactions, as there is no need to distinguish between individual units.

Got any questions, or is there another term you would like us to explain? Drop the request below.