The Fungibility Dilemma

I used to work for one of those cash for gold places. It paid minimum wage and I had to deal with a lot of slimy characters. I was usually on autopilot. The days blur together explaining to people the difference between gold and gold plated. Sorry, sir, we cannot buy your collection of motherboards because the process of extracting what little gold they may or may not contain is extremely expensive. I found myself channeling my inner Peter Gibbons.

I did learn a little about gold bullion. To be exact, not all gold coins are equal. For example, American Gold Eagles are worth more than Canadian Gold Maple Leafs. At first, sounds odd because both coins contain the same amount of gold. The price difference comes from the premium associated with different coins. In the end, some coins are just more desired than others.

The same principle can be applied to crypto.

When you send Bitcoin or Litecoin, you generate unspent transaction outputs. On a transparent ledger, these outputs can be used to trace transactions all the way back to the block they were mined. In the future, as the process for charting these outputs becomes more accurate, an exchange could blacklist your crypto because the transaction history shows at one time or another, it was involved in nefarious activity.

Not All Coins Are Equal

So you finally accumulated 1 BTC after weeks or months of dollar-cost averaging… Yay! Hold the celebration. Does your 1 BTC contain a squeaky clean transaction history? This is the fungibility dilemma. Unless you purchased your 1 BTC from a mining company or broker that could guarantee a clean transaction history, it’s possible you bought a lemon.

Furthermore, newly mined Bitcoin will likely fetch a premium. The centralization of mining in China makes this situation even more complex. They have an edge in obtaining premium coins. If Bitcoin spot is X and newly minted coins are Y, what’s the real price of Bitcoin?

Monero Has Fungibility

At the moment, it’s safe to say Monero (XMR) is the most popular coin with default anonymity. That statement speaks volumes because Monero lacks hardware wallet support (for now) and the learning curve is steep (although getting better).

Default anonymity equals fungibility.

Monero’s ledger is impossible to map for a variety of reasons. First, when sending a transaction, the XMR is sent to a one-time use stealth address. Not the actual address of the receiver. This is why the creation of a Monero wallet includes a spend key, view key and receiving address. The view key is used to verify funds were sent to the one-time use address. In addition, the sender’s identity is hidden with the use of ring signatures. Multiple senders join a ring and jointly sign a transaction. The ring signature is what gets sent to the public ledger. It’s impossible to know who signed each transaction.

Fungibility places Monero in the perfect position to unseat Bitcoin as a store of value and as a transactional currency. 1 XMR will always equal 1 XMR…