Fungibility

Fungibility means that individual units of a good are completely interchangeable and hold the same value—one unit is as good as another. For example, any penny can be swapped for another, and they’re treated equally.

In the world of digital currencies like Bitcoin, fungibility is crucial. If some bitcoins are treated differently because of their transaction history—perhaps they were previously associated with illicit activity—they might be worth less or harder to spend with certain businesses or exchanges. This distinction can lead to more complicated checks for users and merchants, reducing the practicality and appeal of using Bitcoin.

To protect fungibility, privacy tools such as CoinJoin are used to mix transactions and obscure previous ownership. This helps prevent bitcoins from being "tainted" and ensures all bitcoins remain equal and usable, no matter their history.