Why Bitcoin Fungibility Matters

bitcoin

For those not familiar with the term fungibility, it can be best explained by saying it is the ability of an asset to be interchanged with other individual assets of the same type. Fungible assets simplify the exchange and trade processes, as fungibility implies equal value between the assets,

There are many that consider that the fungibility as a feature of fiat should be applied to cryptocurrencies, including Bitcoin, as a means of protecting the holders of the digital currencies. As yet, no central issuing authority such as a central bank has declared their fiat illegal due to its usage in illegal activities and there is a strong argument that this should also be applied to the world of cryptocurrencies.

In practice, you can lend one bitcoin and pay me back one bitcoin. However, it doesn’t have to be the exact same BTC that was lent. This means that Bitcoin is fungible.

Because of the protocol which makes each coin have its own unique signature or hash, it is possible for blockchain analysis to trace a particular coin. This then makes enables the history of the coin and the transactions of a specific individual to be able to be followed. All of which poses security and privacy concerns for digital currency users.

Why Bitcoin Mixers Matter

A BTC mixer or crypto tumbler essentially breaks the link blockchain link by dissociating one wallet from another. These blenders receive bitcoins from any wallet and blend it by sending the equivalent volume of the BTC to the whatever address is provided. The ‘new’ coins are completely different from the coins originally sent. The fact that the exact same amount but different coins are sent on makes the coins fungible.

A trusted and mixing or tumbling service would ensure that the new coins are sent and not even blockchain analysis could trace the coin’s final destination.

All of which should matter to Bitcoin traders.