Fungibility refers to the capability of a good or asset to be interchanged with other individual assets or goods of the same type. The term fungibility implies equal value between assets of the same type.
Understanding the Term
The meaning of fungible is one part or quantity of a product that can be substituted for another of equal value. For any asset to be considered fungible, its units should be indistinguishable and interchangeable with one another. In other words, each of the units of a fungible asset has the same validity and market value. Examples of fungible asset classes include cryptocurrencies, precious metals, bonds, fiat currencies, and commodities.
Fiat money and cryptos are fungible as they can be traded or exchanged for one another, and the units are of equal value. However, an equal exchange of fungible assets does not have to be of two identical units. It can also happen between the same kind of instruments that share the same functionality.
Fungibility refers to the ability of an asset to be readily interchanged for another similar asset. Fiat money and cryptocurrencies are prime examples of fungible assets. On the other hand, NFTs cannot be exchanged for one another and are hence non-fungible.