Product Code Database
In economics and law, fungibility is the property of something whose individual units are considered fundamentally interchangeable with each other.
For example, the fungibility of money means that a $100 bill (note) is considered entirely equivalent to another $100 bill, or to twenty $5 bills and so on, and therefore a person who borrows $100 in the form of a $100 bill can repay the money with another $100 bill, with twenty $5 bills and so on. Non-fungible items are not considered substitutable in the same manner, even if essentially identical.
Fungibility is an important concept in finance and commerce, where financial securities, currencies and physical commodities such as gold and oil are normally considered fungible. Fungibility affects how legal rights, such as the ownership of assets in custody and the right to receive goods under a contract, apply in certain circumstances, and it thereby simplifies trading and custody.
Fungibility refers only to the equivalence and indistinguishability of each unit of a commodity or other thing with other units of the same thing, and not to the ability to easily trade it for something else or the equivalence of two things in value.
The legal recognition of fungibility is limited. Units of a single model of a product (a model of microwave or a toy, for example) would not generally be treated as fungible even though identical, as there is no trading in the product and no context in which two units might be considered legally interchangeable. and other gems are not considered fungible because their varying cuts, colors, grades, and sizes make each one unique. Even if two could be found to be almost indistinguishable or of equal value, they are not considered fungible with each other because diamonds as a class are not recognised as fungible.
The fungibility of a type of good can sometimes depend on context. Although gold is generally fungible, in whatever form it exists, a unique item such as a gold statuette would not be considered fungible with the same weight of gold in some other form.
Fungibility in securities is most evident in dematerialised securities, which include shares and bonds traded in public markets. These take the form of securities whose ownership is evidenced on a register, or (from the perspective of the ultimate beneficial owner) accounted for in the books of a financial intermediary such as a broker or custodian. The securities do not have any physical form, and the fungibility of the individual shares or bonds is therefore inherent in the registered nature of the securities. If a brokerage account shows that a person holds 50 shares, and another 50 are transferred to that person so that the account now shows 100 shares, it is no longer possible (or conceptually meaningful) to separately identify the original 50 shares and the new 50 shares.
Currencies typically operate in a similar way, taking the form of an entry in a bank account denoting a total amount, rather than individually identifiable units.
Coins and paper bills (notes) do take physical form. However, their form of fungibility is different to that of other physical items, because it rests on the legal status of the currency rather than its physical form. A $10 bill is fungible with two $5 bills even though they are physically different, but is not fungible with a fake $10 bill even though it is physically close to identical.
As with other fungible things, there can be exceptions. After a major breach in Japanese exchange Coincheck, token developers for cryptocurrency NEM added a special flag to hacked coins to indicate they are not to be traded or used, meaning that that hacked coins were no longer fungible with other coins.
Non-fungible tokens (NFTs) are similar to units of blockchain currency, except that they are connected to unique Computer file, so that individual tokens can be considered to have a meaningful distinction from others. This distinguishability allows NFTs to have unique use cases, such as their use as blockchain gaming assets, digital collectibles, to indicating ownership of fine art or real assets, used to facilitate decentralized finance loans, and to earn reward tokens.
Not all fungible assets are liquid, however. Shares in private companies are not generally liquid, as transfers are usually severely restricted, but individual shares of a class are nevertheless fungible with each other.
On the other hand, non-fungible tasks tend to be highly serial in nature and require the completion of earlier steps before later steps can even be started. As an example of a serial task that is not fungible, suppose there was a group of nine newly pregnant women. After one month, these women would have experienced a total of nine months of pregnancy, but a complete baby would not have been formed.
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