We have heard a lot about Non Fungible Tokens (NFTs) lately. NFTs are unique pieces of data sitting on a blockchain that usually represent digital files of items such as tweets, art works, or virtual property in computer and other digital games. Being unique in some way, NFTs are not considered interchangeable and thus not fungible. But, could a bitcoin be defined as an NFT? Answering this comes down to how you interpret “fungibility.”

Fungibility is a property of money and other commodities as all units are mutually interchangeable and are indistinguishable from each other. However, this economic definition is a bit problematic. Let’s look at an example.

The dollar bill is usually given as a model of fungibility. Every dollar bill is just like any other and totally interchangeable. Or, are they? Are all dollar bills identical? Of course not — they have different serial numbers, different ages, different conditions, and even different types ($1 Silver Certificates still appear in circulation). So, dollar bills are not really indistinguishable from each other.

But, one can argue, they are surely equal in value and mutually interchangeable, right? Well, it depends. Over two decades ago, Viviana Zelizer wrote The Social Meaning of Money, which pointed out that people often value money differently for various personal or social reasons. Think about it this way: have you ever set aside certain bills for a special purpose like a trip? Do those bills now have the same value as all your other dollar bills? Or, let’s say you are giving or receiving a dollar bill as a gift, and it is a brand-new bill. Do you spend it or save it? It now has a value different from other bills. To Zelizer’s point, these are just a few examples of how people may value money differently.

One can also note the varying value of dollar bills given their collectability. Historic dollar bills, autographed bills, or famous bills (connected to a personality or a crime) are usually worth more than face value. Dollar bills still in uncut form in a sheet of 50, which you can purchase at the Bureau of Engraving and Printing, cost more than regular, cut dollar bills. So, dollar bills may not be equal in value or interchangeable.

Viewed from the perspective above, dollar bills are not fungible and are actually NFTs for a fiat currency. But, if dollar bills are all different and may have various values why do we consider them otherwise and therefore fungible? It is because—in the aggregate—all dollar bills can be considered the same and of equal value.

Now, if we turn to the fungibility of bitcoins, how do they compare?

First, are bitcoins identical? Obviously not, each bitcoin has its own address.

Next, do we assign different values to bitcoins for personal or social reasons? I see no reason why a bitcoin would be treated differently from a dollar here. Bitcoins could be kept in different wallets for different purposes: retirement bitcoins, vacation bitcoins, and etc.

Further, are bitcoins collectibles? I think this is a definite possibility. Would someone pay more for a bitcoin from the Genesis Block rather than one connected to Silk Road, or to the famous pizza purchase of 2010? I think so.

The case can certainly be made, therefore, that a bitcoin is an NFT. However, as in the case of dollar bills, in the aggregate, bitcoins are fungible.

So, when you are deciding whether to buy that tweet on Valuables, a platform for selling and buying NFTs, that has already appeared on thousands, if not millions, of screens in aggregate, think about whether it is all that different from the bitcoin you are buying on CrossTower (and, which one is a better investment).

CrossTower Inc. provides this content for general information purposes, to better inform you on your digital asset investment journey. We do not provide investment recommendations or provide tax advice. Please consult your investment professional or tax advisor if you require assistance in these areas.

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