Fungibility

However, an equal exchange of a fungible asset does not necessarily mean exchanging of two identical units. As long as the transaction happens between instruments of the same kind and that share the same functionality, it can be considered as an equal exchange. For instance, a five-dollar bill can be exchanged with five one-dollar bills, but they have the same validity. In this example, the US dollar is the fungible asset, while the bills merely represent their underlying value.

It has been pointed out that due to the inherent traceability of BTC and similar cryptocurrencies, some coins might be less desirable than others - especially if they have been previously used in dubious or illicit activities. This means that some merchants or service provides may deny receiving Bitcoins as payments if they believe those particular coins were used by criminals in the past.

Unlike some tend to believe, however, this fact doesn’t remove Bitcoin’s property of fungibility. Traceability and fungibility are two different things and, despite their transactional history, each Bitcoin is still the same in terms of quality, technology, and functionality. Similarly, the US dollar is still a fungible asset, although criminals have been using it for illicit activities for many decades.