Is Your Money Fungible?

Pay With Zcash
3 min readMay 12, 2023

The latest Bitcoin upgrade, Taproot, makes it possible to attach images or phrases onto individual bitcoin satoshis. These are called ordinals. It’s like writing with a pen onto a fiat paper note.

In the past month, several marketplaces for Bitcoin ordinals have been created, making it possible to inscribe anything onto a satoshi and then sell it. In doing so, the seller of the ordinal is claiming that particular note is different, special, and more valuable than other notes.

Minting ordinals is generally free except for the transaction fees, and as you may have noticed, this has become very popular. There’s been a lot of congestion on the bitcoin network, and in the past week, transaction fees have skyrocketed. This has resulted in easy money for some, frustration for others, and questions about bitcoin’s usability as peer to peer cash.

But what about one other effect that has gone under the radar? Fungibility. If bitcoin wasn’t fungible before, it certainly isn’t now! Fungibility is the ability of an item to be exchanged because other items like it are identical.

Why is fungibility important? We value predictability. It’s why we eat at chain restaurants repeatedly, because there’s safety in knowing food will be the same every day. It’s why we drink Coca-Cola. Coke is the same whether at a cafe in Portugal or in a living room in Denver. It’s why gold has been the international standard of money. Every atom of pure gold is the same, whether it’s in your pocket or in a Swiss bank vault. Fungibility creates peace of mind.

Fungibility has always been a potential problem for bitcoin, as chain analytics and AI systems map out the blockchain and attach identities to transactions. Every permanent step is stamped onto an open, searchable, blockchain. Would you rather have a bitcoin previously owned by a criminal organization, or a freshly minted no-kyc bitcoin? And now, an attached ordinal makes a note more or less valuable. Would you rather have a beautiful art piece attached to your money, or would you rather have a hate symbol attached to your money? You’re rolling the dice with bitcoin.

Zcashers have been warning people this is a problem, unsure if anyone is listening. And it’s not because we want to live in a shadowy underworld where we can get away with doing all sorts of evil things. Rather, it’s because the best money system needs fungibility. How can a bakery say, ‘the price of our bread is 2000 satoshis, but if you have a good ordinal attached its 1800 satoshis, but also if you have conjoin in the history its 2500 satoshis.’

Zcash uses encryption to create fungibility. Specifically, zero-knowledge encryption, which shields any balance, history, or transaction amounts from public knowledge, keeping every coin identical and fungible. Shielded Zcash coins are exactly equal to other shielded Zcash coins, because they are encrypted with no history or memory. The price of bread can be 0.1 ZEC. Period.

Money needs to be fungible. Every note needs to be the same. Every note needs to have the same value. Every note needs to be spendable in the same way.

Is your money fungible?

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