In cryptocurrency, fungibility is when a coin or token can be replaced by any other identical coin or token.
Fungible refers to a coin’s fungibility. Fungibility refers to a specific currency’s ability to maintain one standard value. As well, it needs to have uniform acceptance. This means that a currency’s history should not be able to affect its value, and this is due to the fact that each piece that is a part of the currency is equal in value when compared to every other piece of that exact same currency.
In the world of cryptocurrencies, this is essentially a coin or a token that can be replaced by another identical coin or token, and they are both mutually interchangeable.
Now, you have real-world cases that are highly specific, such as gold. Gold is generally considered to be fungible due to the fact that one gold ounce is equivalent to another gold ounce; however, in some cases, this is not the case. When a fungible good is given a serial number or other identifying marks, it could no longer be fungible going forward. So for the sake of this example, if you added numbers to a gold bar, it would become distinguishable when compared to another gold bar.
To further explain, we can look at the Federal Reserve Bank of New York. The bank offers gold custody services to central banks as well as governments from all across the world. It does this by storing the gold bars in an underground vault, and all of the gold bars are then deposited while being weighted with precision. They have purity markings on the individual bars. These markings are in turn inspected for authenticity.