Fungibility

Fungibility is a property of a good or asset whereby individual units are interchangeable and indistinguishable in value and use. In economics, a fungible good can be substituted for another identical unit without changing the good’s overall value, which supports efficient trade, pricing, and liquidity.

Common examples include currency notes and coins of the same denomination, standard commodities (crude oil of a given grade, gold bars of the same weight and fineness), and standard financial instruments like shares of the same class. Non-fungible items are assets that are not interchangeable on a one-to-one basis because each has distinct characteristics, such as works of art, real estate, or collectible items. Digital assets may be fungible or non-fungible: bitcoin and ether are typically fungible, while non-fungible tokens (NFTs) represent unique items.

Fungibility affects market efficiency, monetary policy, and taxation. In a fungible currency system, any unit can be exchanged for another with the same value, enabling seamless transactions and liquidity. Some contexts, however, constrain fungibility—for example, legal tender status may be applied differently to damaged notes, or regulatory controls may prevent the use of some units for anonymity or traceability.

In technology and finance, fungibility is key for payments and settlement. Yet it also complicates anti-money laundering measures because the indistinguishability of units can obscure the origin of funds. In contrast, non-fungible assets require unique identifiers and individualized valuation, which affects pricing, provenance, and ownership rights.