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Fungibility in #Monero & #Bitcoin Dr. Daniel Kim
Video Transcript AI Summary
Fungible means that all the options are the same, like cash and precious metals. Non-fungible means you care about the specific unit, like real estate or artworks. Bitcoin falls into the non-fungible category because it has a digital record of ownership. However, Bitcoin's transparency means that if a squeaky clean person interacts with someone involved in illegal activities on the blockchain, their reputation could be tarnished. This is why some people may choose to leave Bitcoin for a coin that offers more protection. Nobel Prize-winning research supports the idea that people will leave a market where their goodness is not rewarded.
Full Transcript
Speaker 0: So, roughly, fungible means that you don't care which thing you get because from your point of view, all the things that you could get are all the same. So if you look at the fungible bottom row here, we're looking at cash and precious metals. So if you have gold, you can always melt it down. There's no history associated with any piece of gold. And so from your point of view, as long as you know that something is gold, you don't care where it came from.
Gold is gold. It's fungible. In the decentralized world, the leader in that market segment is currently Monero. There's also non fungible, which is on the top. And that is, you do care which particular unit of value that you're getting because they're not the same.
So let's think about real estate or artworks, if you have a plot of land, there is presumably reasons that you chose that plot of land, and it's not really cool for you to just get whatever plot of land that comes out of some grab bag or something. Land is not fungible and it's the same with works of art. So Bitcoin falls in that category, in that there's a record, a digital record, that is really etched in don't. Of everybody who had a piece of that value in the Bitcoin blockchain before you did. And so for people who have a squeaky clean reputation, who have worked hard, played by the rules their whole life, they want to be insulated from the potential misdeeds of other people who are on that same network.
Which means that Bitcoin is going to fail these people. Bitcoin is going to fail these people because sometimes these squeaky clean people are going to deal with other people on the Bitcoin blockchain who are not as squeaky clean as they are. And because in a surveillance coin, a transparent coin like Bitcoin, reputation transfers as well as value. That means that the squeaky clean person's reputation is going to be besmirched by chance by having done some sort of random financial transaction with someone on the Bitcoin blockchain who's not as squeaky bean as they are. So a classic example would be a squeaky bean person has a car and they sell it to somebody for Bitcoin and unbeknownst to them, the person who they sold their car to got their Bitcoin by dealing on the dark web or some nefarious activity.
So it's a bit counterintuitive, but the conclusion of this, and this is also supported by some Nobel Prize winning research in economics, for example, the Akerlof paper, which studies behavior of participants in a market when buyers and sellers have different levels of information on what's being traded. The conclusion of that is that the squeaky clean people are going to leave that market in which their goodness basically is not compensated for. And they are going to go to a coin that will protect them like