A Look At Bitcoin Fungibility And Why It’s So Important

Bitcoin fungibility has long been the center of a debate that has been waged since its early days. In Bitcoin’s infantile stage, most people wrongly believed the coin to be anonymous. However, nowadays, it’s well-known that Bitcoin isn’t private. In most ways, due to its open blockchain, it’s quite the opposite. This realization has led to some heated debates regarding the world’s fungibility’s first cryptocurrency.

What is fungibility

To understand the Bitcoin Fungibility debate, you first need to understand what fungibility is and why it’s vital for a monetary system. Fungibility is a term that refers to the ability of a currency to be exchanged for another of the same currency without any change in value. Notably, fungibility plays a vital role in the way blockchains work.

For example, gold is fungible, meaning any two pieces of gold that are of the same grade and weight hold the same value. They are indistinguishable from each other. Fiat currency is semi-fungible for a few reasons. Yes, any two-dollar bills hold the same value in theory. However, there are unique serial numbers on each bill that can track and record a certain bill’s history. In the past, these serial numbers have been used to track fiat currency globally.

Fungible vs. Non-Fungible Tokens

Nun-fungible tokens (NFTs) are different than fungible tokens in that they are unique in nature. They are not interchangeable for other tokens of the same technical characteristics. Each NFT holds its own value based on what it represents. Some NFTs represent real estate, documents, art, and more.

Is Bitcoin Fungible?

The answer to this question is yes and no. Bitcoin is considered semi-fungible because, in its natural state, it’s not as anonymous as gold or fiat currency. All Bitcoin transactions are traceable. Since it can track it, it leaves regulators in a position of power to ban or blacklist certain coins in the future.

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William K. 1 week ago Member's comment

Since I have been the target of two extortion attempts tha demanded payment in Bitcoin, I find myself rather opposed to the ability to hide transactions. In fact, it seems that the primary goal would be to facilitate criminal financial activity. It may be that there are a few legitimate reasons for keeping the source of money hidden, but mostly it appears that it is for criminal purposes. Drug trafficers could avoid needing to smuggle large amounts of cash across borders by the use of Bitcoin, and that would save them from the risk of the payments being intercepted. And certainly having the previous ownership of funds hidden would make prosecution for extortion and blackmail more challenging.

So why aid and abet the criminal enterprises???