Fungibility in crypto: The missing piece

in LeoFinance19 days ago

Fungibility in crypto: The missing piece.

Direct from the desk of Dane Williams.

Fungibility is the most critical attribute of cryptocurrency in 2023. I take a look at why privacy coins like Monero (XMR) are the future.

In the world of cryptocurrency, there's a term that has been gaining more attention recently: fungibility.

Fungibility is a critical attribute for any currency, as it ensures that all units of the currency are equal in value and can be easily exchanged for one another.

However, when it comes to cryptocurrency, not all currencies are created equal in terms of fungibility.

This is particularly true for Bitcoin, which is not truly fungible!

In this post, I’ll take a closer look at fungibility in cryptocurrency and explore why it's so important.

Let’s dive right in.

A Monero (XMR) logo on a coin, representing fungibility in crypto.

What is fungibility in crypto?

Fungibility refers to the ability of a unit of currency to be interchangeable with another unit of the same currency.

In other words, if you have two units of the same currency, they should be indistinguishable from one another and have the same value.

This is incredibly important for cryptocurrency, as fungibility is a key factor in achieving widespread adoption.

Without fungibility, cryptocurrency risks becoming fragmented and segmented, with certain units of currency being worth more or less than others.

This can create confusion and barriers to entry for new users, ultimately hindering the growth and potential of cryptocurrency.

In my opinion, fungibility is the essential missing piece required to build trust and confidence in the system, as well as ensuring its seamless integration into our current financial landscape.

Bitcoin is NOT really fungible

I know this might be a shock, but no...

Bitcoin (BTC), the most popular cryptocurrency, is not truly fungible.

This is because every Bitcoin transaction is recorded on a public ledger called the blockchain, which means that every coin can be traced back to its origin.

This lack of privacy means that some Bitcoins may be considered "tainted" or associated with criminal or immoral activity, making them less valuable or even unusable.

This is a problem for anyone who wants to use Bitcoin as a legitimate currency.

A scenario highlighting Bitcoin’s lack of fungibility

Let's say that a conservative business, like a luxury retailer, decides to start accepting Bitcoin as a form of payment.

They promote this to their customers, hoping to attract new buyers who prefer to use cryptocurrency.

However, after a few transactions, the business becomes aware that some of the Bitcoin they have received has been used to purchase unethical goods or services, like drugs or illegal weapons, on the dark web.

This presents a major issue for the business.

They pride themselves on their reputation and ethical standards and the thought of accepting currency that has been linked to criminal activity goes against their values.

They fear that if word gets out, it could damage their brand and turn off customers who don't want to be associated with a business that accepts "dirty" money.

In this scenario, could you see businesses only accepting certain Bitcoins due to their completely public spending history?

As soon as one Bitcoin becomes less valuable than another for whatever reason, you no longer have fungibility.

Without privacy features integrated into cryptocurrencies, this situation is an inevitability.

Monero (XMR) fixes the crypto fungibility problem

Monero (XMR), on the other hand, is designed to be completely fungible.

Its privacy features ensure that every unit of Monero is indistinguishable from any other, and that it's impossible to trace the history of any Monero transaction.

This means that Monero is a valuable asset for anyone who wants to use a currency that is private, secure, and fungible.

Can you see that if the luxury brand business in the example above used the more fungible Monero (XMR) for payments, there would be no problem?

Monero fixes this.

Monero's fungibility sets it apart from other cryptocurrencies and makes it a valuable asset for anyone looking for a truly private and secure currency.

As we move into a more privacy-focused future, Monero's unique features will likely make it an even more important currency.

The need for fungibility will make privacy coins like Monero (XMR) a staple

The fact of the matter is that fungibility is an essential attribute of any successful currency, including cryptocurrency.

Without fungibility, a currency cannot be truly interchangeable or uniform in value, which can lead to issues with trust and adoption.

Unfortunately, Bitcoin, the most well-known cryptocurrency, is not truly fungible due to its transparent blockchain system.

This lack of fungibility presents a significant problem for businesses and individuals who may be hesitant to accept Bitcoin, as they cannot be sure whether it has been involved in any unethical transactions in the past.

However, the good news is that there are alternative cryptocurrencies like Monero (XMR), which are designed to address the issue of fungibility.

With Monero's advanced privacy features, each unit of XMR is indistinguishable from another, making it a truly fungible currency.

As more businesses and individuals become aware of the importance of fungibility in cryptocurrency, it's likely that privacy coins like Monero will play a more significant role in the future of digital currency.

I’m firmly of the opinion that fungibility is the missing piece in cryptocurrency and it's vital that we pay attention to it if we want to see widespread adoption of digital currency in the future.

Best of probabilities to you.

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i agree, #fungibilitymatters, and #privacymatters. Some privacy coins which i particularly like which and more likely to remain fungible having better tech than Monero, are:
LTHN (Lethean), EPIC, OXEN, ZANO, CCX, (Conceal), HUSH, DERO, XHV (#Haven), GRIN, GHOST, SCRT (Secret), XLA (Scala), PRCY (Privacy Coin), RTM (Raptoreum), AEON and ARW (Arrow), approximately in that order

See this post comparing EPIC & XMR in that respect:

i have some of all of tje above, including Monero. All my eggs are not in one basket

Look at that Doc, we finally agree on something! 😉

Thanks for sharing those other privacy coins, I'm going through and having a look at them all now.

On first glance, EPIC sounds great but it's so hard to tell which projects are genuinely permissionless and secure...

You ranked LTHN as your most promising XMR competitor.

If you've got a sec, do you mind giving me a few points on why it's permissionless and secure?

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Well, i'm not an expert in this area, but i do research quite deeply before buying into projects, and afterwards i don't always remember much of the detailed technical stuff. i have conversed a few times with @snider, lead dev of Lethean, and shared with him about The Matrix-8 Solution which he quickly understood, deciding it was just what he needed for governance of the Lethean community. This is a work in progress, but with recent announcement of a soon to come chain-swap to a fork of Zano, i think it's coming to fruition. And i'm aware of sone other innivation coming to Lethean too.

From @darbs, another of the developers:

A summary of how I believe Lethean is perceived as a solution today, what improvements are possible and why it's alot more than this.

So, there's several factors including gut feeling that put #Lethean $LTHN high on my list.

Hope this helps,

A Dios amigo

Ps. i'm not saying Lethean is most promising competitor to Monero, but a better privacy project.

i expect Monero will for a long time be up high as a privacy payment coin, but there are and will be many other privacy coins which can be used for payment of services (and in the future probably it will be very easy to pay with any coin with chain agnostic bridges in play). So looking at the different use cases in addition to a means of exchange is important to realise the value of each, compared with current market price. It's also important to consider the integrity (in terms of being good for humanity) of the project and authenticity of the founders (if doxxed).

Quick look at Zano

That is a GREAT thread!

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Zero Knowledge proofs are a must going forward with cryptocurrency.

You will love reading:

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I feel naughty reading something titled a manifesto lol...

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It is interesting, but do you think this will make the authorities even more anti crypto if they see it is less possible to trace illegal activities...

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Is our end goal still permissionless money?

Or are we just an extension of the current system that needs to do what 'the authorities' (yours, mine or the US?) say? 😉

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I think the focus on dirty money or not is just something that is unavoidable. I do think privacy is going to be needed for some of the stuff. It just makes me wonder if the encryption layer can be cracked over time. People might have to cycle through the various options.

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I'd argue that it is entirely avoidable in crypto, simply by using privacy coins.

Monero (XMR) is so under-utilised and certainly undervalued.

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Privacy isn't given much thought in crypto but it is much needed in certain transactions. But do you think that privacy coins may be more susceptible to illegal trade?

Sure, criminals use privacy coins.

But in my opinion, the legitimate use cases for privacy coins mean the pros far outweigh the cons.

Either way, it doesn't matter what we think.

Privacy coins exist and at this point they're unstoppable.

No matter what regulators say, people will continue to use them and as such, will have to embrace them eventually.

It's inevitable.

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Yes, that's a great point. The pros will definitely outweigh the cons so there isn't much need to magnify the cons out and solely focus on them. I think it's great that they are unstoppable because majority will be in need of them at some point.

Yep, I agree.

The old saying "you don't need something until you do", rings true here.

Let's watch how the acceptance of privacy coins by society plays out.

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The stratification of currencies makes converting between them difficult, as gold is not silver... Each currency has its own characteristics

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Do you see the process of converting between privacy coins getting easier in the future?

Do you see a genuine DEX listing happening for Monero?

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