Fungibility refers to the interchangeability of individual units of a particular asset or currency. It means that each unit is essentially the same as every other unit and can be mutually substituted without any distinction or loss of value. In simple terms, if something is fungible, it means that one unit or piece is completely indistinguishable from another unit or piece of the same type.
For example, consider a $10 bill. Each $10 bill is identical to every other $10 bill, and they can be freely exchanged without any difference in value. Similarly, commodities like gold or oil are fungible because each unit of gold or barrel of oil is the same as any other unit of the same quality and quantity.
On the other hand, non-fungible assets are unique and cannot be mutually substituted. An original piece of artwork or a specific collectible item, like a rare baseball card, are examples of non-fungible assets. Each piece has its own distinct characteristics, making it unique and not interchangeable with any other piece.
Fungibility is an important concept in various fields, including finance, economics, and cryptocurrency. It ensures the standardization and ease of trade for assets that are considered fungible, allowing for efficient transactions and liquidity in markets.