A fungible asset is interchangeable with another of the same kind, holding equal value, such as cash, stocks, or cryptocurrencies like Bitcoin. A non-fungible asset, on the other hand, is unique and cannot be exchanged on a one-to-one basis, like real estate, collectibles, or NFTs (non-fungible tokens), which represent distinct digital or physical items.
Fungible
Fungible items can be replaced by identical items and retain the same value. Example: Money can be broken down into different denominations but keeps its total value.
Click to break down
This $100 bill can be exchanged for any other $100 bill.
Non-Fungible
Non-fungible items are unique and cannot be replaced with identical items. Example: The Mona Lisa is unique and any damage reduces its value significantly.
Click to damage
The Mona Lisa is unique and irreplaceable.
Understanding Fungibility
Fungible items (like money) can be exchanged for equal value items without losing value. A $100 bill can be broken into smaller bills, and the total value remains the same.
Non-fungible items (like artwork) are unique and cannot be replaced. If damaged, they lose value because their uniqueness is compromised.
This concept is important in understanding NFTs (Non-Fungible Tokens) and digital assets in the context of AI and blockchain technology.