What Does Fungible Mean?

So, for example, to pay a should you invest in bitcoin $10 bill, a person does not necessarily need a different $10 banknote. Instead, two units of $5 can work, which will not change the bill amount in any manner. Whether goods, assets, or commodities are fungible depends on the possibility of their interchange with different units of the same item without any effect. In other words, any noticeable difference in the quality of products of the same units affecting their value and utility will make them non-fungible. Precious metals are considered fungible, but there are exceptions. For example, an ounce of gold is equivalent to another ounce of gold as both are indistinguishable in form and value.

Gold is naturally fungible because one ounce of gold is equivalent to another ounce of gold. Gold bars may be given unique serial numbers and purchased by particular investors while still being held by a custodian. Allocated gold holders generally have better legal protections in the event of a bankruptcy. They own particular bars of gold, which are not considered to be fungible goods.

Things that are fungible can also be turned into non-fungible items. Although fungible items are ideally identical, what happens if you do something to make them unique? A great example of this is the gold bars stored by the Federal Reserve Bank of New York. These bars are, essentially, the same — they’re all made of gold, which is definitely fungible in a general sense. Cash of fiat money is fungible as it does not matter which denominations or series of banknotes one uses for repayment as long as the value remains the same.

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Hence, the deal was unidentical and non-equivalent in all respect. Not every tradable instrument is fungible in the stock market. However, stocks that are eligible for substitution with their identical counterparts are cross-listed. These are securities trading on multiple marketplaces, including the domestic and foreign exchanges. A commodity must be fungible before it can be traded on a commodities exchange. A specific grade of commodity, such as No. 2 yellow corn, is a fungible good because it does not matter where the corn grew; it is essentially the same product.

It means a $10 bill will have the same value in every bank or every transaction made, irrespective of crypto exchange white label api trading on your platform the series. Assets like diamonds, land, or baseball cards are not fungible because each unit has unique qualities that add or subtract value. For instance, because individual diamonds have different cuts, colors, sizes, and grades, they are not interchangeable, so they cannot be referred to as fungible goods. 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.

• In scenario 2, it was an automobile, which would not be the same given the number of times it was repaired or used, even if it belonged to the same model.
• However, no two regional currencies can be fungible due to differences in their values.
• Anything we want to use as money has to be fungible, whether it be bags of saffron, shells, beads or gold bars.
• These are securities trading on multiple marketplaces, including the domestic and foreign exchanges.
• The exact bars deposited to the New York Fed are the exact ones returned upon withdrawal, so these types of gold deposits are not considered fungible.
• For example, an ounce of gold is equivalent to another ounce of gold as both are indistinguishable in form and value.

Turning a fungible item into a non-fungible item

However, the customers thought there was something different about them. According to Your Dictionary, the word fungible has Latin origins. The word fungible stems from the Medieval Latin fungibilis, Latin fungor, and the Latin fungī.

Fungible sometimes subjective

Because listed options are considered fungible goods, it is possible to close out positions by taking offsetting positions. For example, if you sell (write) a call option, you can close out the position by buying a call with the same underlying asset, expiration date, and strike price—their components are equivalent. Fungible assets create a how to buy a panther flow in trade and exchange processes because they’re essentially equal in value.

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Non-fungible items, on the other hand, are sometimes very different from one another, and these unique characteristics give them unique values. Even in an empty field being developed for building lots, each lot is different and has different characteristics. Some are closer to the main road than others; some will be closer to fire hydrants, or get more sun, or maybe even have a few trees that the others don’t.

What Is the Meaning of Fungible?

This also goes for shares of exchange-traded funds (ETFs) and similar investments. Money has a set value and is considered like for like in a value transaction. Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. Diamond is non-fungible because of its uniqueness in size, shape, color, quality, and grade. So, it is impossible to substitute a unit of a diamond for the same quantity of another diamond. Another thing is that a banknote can be interchanged with multiple units as far as their values are equal.

Examples of highly fungible goods can be found in many of the products sold in an auto parts store. For instance, if a car’s windshield wiper fails, another similar product may be purchased to replace the defective product. By contrast, a non-fungible product is rare and specific in nature. An example of a non-fungible product is a genuinely-autographed letter by the English novelist Charles Dickens. Should this letter be burned in a fire, it is irreplaceable.

Also, the bank must return exact bars to the depositor upon withdrawal. People more often confuse the concept of fungibility with exchanging a particular item with any other product. Instead, it applies to the interchange of equal units of goods or commodities. Some considerations, however, come into play when deciding whether or not a fungible commodity is suitable for substitution. The line between fungibility and non-fungibility may be a thin one.

Sometimes, the term liquidity seems to be a fungibility synonym. Liquidity defines the exchange of goods, assets, and commodities for fiat or digital currencies or anything of value. Whereas in fungibility, the substitution can occur with anything identical in worth, quality, form, or function.