Tokens and Fungibility

Wikipedia says: “In economics, fungibility is the property of a good or a commodity whose individual units are essentially interchangeable.”

Tokens are fungible when we can substitute any single unit of the token for another without any difference in its value or function.

Strictly speaking, if a token’s historical provenance can be tracked, then it is not entirely fungible. The ability to track provenance can lead to blacklisting and whitelisting, reducing or eliminating fungibility.

Non-fungible tokens are tokens that each represent a unique tangible or intangible item and therefore are not interchangeable. For example, a token that represents ownership of a specific Van Gogh painting is not equivalent to another token that represents a Picasso, even though they might be part of the same “art ownership token” system. Similarly, a token representing a specific digital collectible such as a specific CryptoKitty is not interchangeable with any other CryptoKitty. Each non-fungible token is associated with a unique identifier, such as a serial number.

We will see examples of both fungible and non-fungible tokens later in this chapter.

Note

Note that “fungible” is often used to mean “directly exchangeable for money” (for example, a casino token can be “cashed in,” while laundry tokens typically cannot). This is not the sense in which we use the word here.