A good or asset is considered fungible if it can be substituted for another asset of the same type and is indistinguishable. In this case, the market value and validity of the assets must be the same. Examples of fungibility include commodities, fiat currencies, precious metals, equities, and cryptocurrencies. If fungibility continues to occur between assets with the same function, it can be considered an equal exchange. For instance, if you have 5 dollars, you can exchange for 5 pieces of 1 dollar, then the validity of the exchanged currency is the same.
What Is Fungibility in Cryptocurrencies?
Most cryptocurrencies are generally considered fungible. In the case of Bitcoin, we can see that it is fungible. All Bitcoin units are equivalent to other units and are created on the same blockchain. Regardless of the transaction history - suspicious or illegal activities - every Bitcoin has the same quality, technology, and functionality. Bitcoin is also an asset that can be exchanged for fiat currencies such as the US dollar.
What Are the Fungible Assets?
Commodities, fiat currencies, precious metals, equities, and cryptocurrencies are examples of fungible assets. To explain some examples:
Gold
Gold can be considered fungible. This is because the value of gold does not depend on any particular form (coins, bars, or other). However, if there is a unique situation, such as a gold statue of a famous person or a special entity, then gold ceases to be fungible. For instance, a rare gold bar from the 15th century may be worth more than a new gold bar created today. In such cases, gold may not be considered fungible.
Fiat Currencies
Fiat currencies are backed by the government and recognized as legal tender. For instance, 10 dollars can be exchanged for two 5 dollars. This is because they both have the same value and there is no difference between them for anyone else.
Equity Shares and Financial Assets
In some cases, stocks may have different variations. But in most cases, a share in an equity share will have the same value and function as any other share. This is also the case for other financial assets such as bonds or options contracts. For instance, the share A you own in the company you work for has the same function as the share A owned by another friend. But if you own share A and another person owns share B, then there is a difference between value and functionality and the stock is not fungible.
What Does Non-Fungible Mean?
Non-Fungible is the name given to assets that have a unity of value and cannot be divided into units. In this case, a good or asset does not have the same functionality and value. Non-Fungible assets refer to assets that are rarely available and are determined by the community's perception of value.
What Are the Non-Fungible Assets in Crypto?
In the blockchain ecosystem, there are tokens or digital assets that have different and unique properties compared to other assets. Digital assets with these properties are called NFTs (Non-Fungible Tokens). NTFs, collections, digital art, virtual real estate, items in virtual games, and more are considered non-fungible.
Art
Works of art are often one-off creations. For instance, there is only one copy of Gustav Klimt's "The Kiss" and although you can buy a copy of the painting, its value is much lower than the original. Although works of art such as paintings, sculptures, etc. are copied, there is only one original work that inspires them, which makes them rare.
Collection
Collections are non-fungible items that can be made for almost anything. For instance, if you have a rare sports collection, such as a basketball shoe used by Michael Jordan, then your collection cannot be exchanged, copied, or reproduced. This is because even if the same shoe is sold outside, the real Jordan shoe you own is not a substitute and is not like any other.
Real Estate
In the real estate sector, no two properties or goods are alike and no more can be created. Each property is unique and cannot be duplicated or exchanged for another property.
NFT (Non-Fungible Token)
NFTs cannot be copied or divided into other units and they are non-fungible. Non-Fungible Tokens are digital art with specific codes or pieces of data to make them unchangeable. They are completely unique and different from other tokens.
What Are the Differences Between Fungible and Non-Fungible?
Fungible goods or assets can be substituted or exchanged for each other. These assets have the same market value and functionality, so they are indistinguishable. But non-fungible goods or assets have a completely different and separate value. They cannot be substituted for each other, their perception of value varies according to society, they cannot be divided and they cannot be exchanged.
