Fungible

Fungible (pronounced fuhn-juh-buhl)

In law, finance and commerce, being of such nature or kind as to be freely exchangeable or replaceable, in whole or in part, for another of like nature or kind (especially as applied to physical goods).

1765: From the Medieval Latin fungibilis, the construct being fung(ī) (to perform the office of) + -ibilis (-ible) (a variant of -bilis, the suffix usually added to certain verbs to form an adjective denoting passive qualities).  Root was the Latin fungor (I perform; I discharge a duty), source of the Modern English function, it was originally a legal term in Medieval Latin drawn from Roman civil law, res fungibilis (replaceable things), used typically in proceedings in phrases such as fungi vice (to take the place).  The adjectival form was first used in 1818.  The synonyms are interchangeable, exchangeable & replaceable.  Of late, the word has acquired a new life in the NFT, the non-fungible token, an entry in the digital ledger the blockchain which, thus far, provides an owner with an unimpeachable, blockchain-verified proof of ownership.  Fungible is a noun and adjective, fungibility is a noun and nonfungible & unfungible are adjectives that of late have come more frequently to be used; the noun plural is fungibles.  

Fungible and non-fungible

In law, finance and commerce, the general principle of fungibility is of a thing able to be substituted for something of equal value or utility.  The classic fungible is physical cash.  If one lends $10,000 to another, it usually matters not if the loan is repaid in different banknotes than those used in the initial transaction.  However, a rare US$10,000 note is non-fungible and ten thousand one dollar notes are not a substitute in the same way that to a coin collector, a rare nickel (five cent) is not interchangeable with another whereas most nickels are in just about any transaction.  A commodity like crude oil is fungible.  When a futures trader executes a contract for 100,000 barrels of Tapas Crude six months hence, the oil may be in the ground, in a tanker or in storage tank somewhere.  Precious diamonds are often not perfectly fungible because each is unique and cannot always be substituted with another, even if of similar size and identical nominal value whereas industrial diamonds are fungible and need only conform to a specification to be an acceptable substitute.  The concept is important in criminal law.  As a general principle, when alleging theft, the state has to prove the items in position of accused are those stolen.  If the theft involves fungibles (petrol, money etc) where it may not be possible to establish the physical relationship, the state must provide other evidence.

Images associated with some of Lindsay Lohan's NFTs. 

Non-fungible tokens

A non-fungible token (NFT) is an entry on a blockchain, a digital ledger.  All the NFT does is certify the uniqueness of the token itself and it’s created usually to guarantee an exclusive (legal) ownership of some asset, typically material stored in digital format such as image and audio files.  Of themselves, NFTs don’t restrict access to a file or prevent its duplication and dissemination; they are just a proof of ownership.  Transactional volumes by 2021 had reached US$ billions; future growth will depend of (1) whether the blockchain proves as robust as it appears and (2) whether NFT prove to be actual tangible asset or bubble although there’s no reason they can’t assume a different trajectory from cryptocurrency.  Technically, a blockchain need not be associated with a cryptocurrency but to date most NFT transactions have been on the Ethereum blockchain, its infrastructure well understood and at one layer of that structure, any blockchain is just another file system, an NFT differing from a ETH coin only in that different (and additional) data are entered.  The NFT can be associated with a digital or physical asset or a license to use the asset on whatever basis may be granted and may be traded.  The underlying mechanism of the blockchain means as database entries, NFTs work like any cryptographic tokens but, unlike cryptocurrencies, NFTs are not interchangeable and are thus inherently non-fungible.  However, although every bitcoin is exactly the same, inevitability, someone will work out a way to find some unique aspect of some bitcoin (such as the “first” one) and at that point, the NFT will be created.

No NFT required.  A 1962 Ferrari 250 GTO in silver (US$70 million) and a fine replica by Tempero of a 1963 model in rosso corsa (US$1.2 million).

NFTs address one aspect of the problem associated with anything digital: the ease of creation of perfect replicas and real world analogies are illustrative of the need.  Ferrari made only thirty-nine 250 GTOs and one has sold for US$70 million but it’s possible for experts to create an almost exact replica, indeed one often of higher quality than an original but it will only ever be worth a fraction of the real thing.  With something digital, just about anyone can create an exact duplicate, indistinguishable from the source, hence the attraction of the NFT which, thus far, can’t be forged.  NFTs have been linked to real-world objects, as a sort of proof of ownership which seems strange given that actual possession or some physical certificate is usually sufficient, certainly for those with a 250 GTO in the garage but there are implications for the property conveyancing industry, NFTs possibly a way for real-estate transactions to be handled more efficiently.  For those producing items subject to much piracy (running shoes, handbags etc), there’s interest in attaching NFTs as a method of verification.