Fungibility ≠ Traceability
Bitcoin is fungible, although it can be tracked when it is on-chain (base layer). These are two distinct concepts.
Fungibility means one bitcoin is equal to another. This is a key characteristic of the asset. To understand non-fungible goods, the classic example is a piece of art, which by its nature is unique and does not allow for one item to be exchanged for another using compensation, which is part of the law of obligations.
On the other hand, traceability refers to the ability to verify a transaction history. This allows for the creation of contracts between parties with specific specifications. However, it remains within the contractual freedom between parties: it does not affect the fungibility of bitcoin.
For example, an exchange may decide not to accept bitcoins that have been part of a CoinJoin. This decision of the exchange is made through its terms of use (contractual agreement with the exchange user).
This situation is similar to the functioning of traditional currencies. The dollar is also fungible. One dollar has the same value as another dollar of the same denomination.
However, each dollar bill has a unique serial number. This makes it possible to track the movement of individual notes.
I made a video a while ago:
Whoever finds money like in the video clip needs to take into account that the serial numbers are listed somewhere very likely.
And if certain notes are on a list for being part of illegal activities, a bank may refuse to credit the value and even report to the authorities when a customer tries to make a deposit.
In both cases, the legal definition of the asset (bitcoin or dollar) continues to be fungible. Saying bitcoin is "less fungible" would be similar to saying the dollar becomes less fungible in the case of tracking serial numbers.
Another common argument is in the case of Ordinals and "rare sats" affecting fungibility. Again, this is a contract between parties. And contracts between individuals do not modify legal nature. Similarly, there are collector markets that buy dollar notes with unusual serial numbers: https://arata.se/xexhq and this does not change the legal, fungible nature of the US dollar.
This is why the concepts of fungibility and traceability are separated.
The ability to trace does not change the inherent property of fungibility in bitcoin or dollars. It simply adds a layer of information that may influence the decisions of certain parties, based on the history or origin of the assets.
Hello! Seiiti Arata (English profile)
npub187…cwd0t
2024-02-04 12:41:00
Author Public Key
npub187c8yedmqmss7fxtzqya4vphfkazl04lvrz7cp5xghhwzjduc4rqkcwd0tPublished at
2024-02-04 12:41:00Event JSON
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"content": "Fungibility ≠ Traceability\n\nBitcoin is fungible, although it can be tracked when it is on-chain (base layer). These are two distinct concepts.\n\nFungibility means one bitcoin is equal to another. This is a key characteristic of the asset. To understand non-fungible goods, the classic example is a piece of art, which by its nature is unique and does not allow for one item to be exchanged for another using compensation, which is part of the law of obligations.\n\nOn the other hand, traceability refers to the ability to verify a transaction history. This allows for the creation of contracts between parties with specific specifications. However, it remains within the contractual freedom between parties: it does not affect the fungibility of bitcoin.\n\nFor example, an exchange may decide not to accept bitcoins that have been part of a CoinJoin. This decision of the exchange is made through its terms of use (contractual agreement with the exchange user).\n\nThis situation is similar to the functioning of traditional currencies. The dollar is also fungible. One dollar has the same value as another dollar of the same denomination.\n\nHowever, each dollar bill has a unique serial number. This makes it possible to track the movement of individual notes.\n\nI made a video a while ago:\nhttps://nostr-arata.s3.us-east-1.amazonaws.com/s-bitcoin-001-C-s-AKYQZ4.mp4\n\nWhoever finds money like in the video clip needs to take into account that the serial numbers are listed somewhere very likely.\n\nAnd if certain notes are on a list for being part of illegal activities, a bank may refuse to credit the value and even report to the authorities when a customer tries to make a deposit.\n\nIn both cases, the legal definition of the asset (bitcoin or dollar) continues to be fungible. Saying bitcoin is \"less fungible\" would be similar to saying the dollar becomes less fungible in the case of tracking serial numbers.\n\nAnother common argument is in the case of Ordinals and \"rare sats\" affecting fungibility. Again, this is a contract between parties. And contracts between individuals do not modify legal nature. Similarly, there are collector markets that buy dollar notes with unusual serial numbers: https://arata.se/xexhq and this does not change the legal, fungible nature of the US dollar.\n\nThis is why the concepts of fungibility and traceability are separated.\n\nThe ability to trace does not change the inherent property of fungibility in bitcoin or dollars. It simply adds a layer of information that may influence the decisions of certain parties, based on the history or origin of the assets.",
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