431 sats \ 8 replies \ @elvismercury 26 Sep 2023 \ on: Runes: A worse-is-better fungible token protocol for Bitcoin bitcoin
Dumb question, but what is a fungible token, exactly? I mean, how would you describe the construct?
I think sats or their aggregates aren't fungible by most definitions, since their provenance can be tracked and distinguished, unless one goes to great pains to obscure that statistically.
Is that the issue that he's talking about, that these other things (Counterparty, etc) supposedly address?
There are 4 key points to understand about fungible tokens:
Interchangeability: Fungable tokens are mutually interchangeable. If you have one unit of a fungible token, it has the same value as any other unit of the same token. For example, one Bitcoin is always equal in value to another Bitcoin.
Indivisibility: Fungible tokens are usually divisible into smaller units. For instance, you can divide one Bitcoin into smaller fractions known as satoshis (sats). This divisibility allows for more flexible transactions.
Uniformity: All units of a fungible token are identical in terms of attributes, value, and functionality. Each unit has the same properties as any other unit of the same type.
Standardization: Fungible tokens often adhere to specific standards or protocols on blockchain networks. These standards define the rules for token creation, transfer, and management, ensuring consistency and compatibility across different applications and platforms.
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Fungible means that any unit has the same face value. Of course all sats (and bitcoins) are originally fungible. The fact that they can be identified or traced is irrelevant in terms of fungibility. Euro or dollar bills have serial numbers printed on them too, yet they are fungible money.
That's one of the problems with Ordinals: adding non-fungibility to units of value that are (and should remain) fungible is not an amazing idea. Bitcoin was not made for this and twisting the protocol to allow it is not ideal (contrary to other blockchains, where NFTs are clearly separated and handled by specific standards).
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Fungibility is a point of view -- if people are treating units of the thing differently, then those units are not fungible from that particular point of view.
The dollar bill JFK had in his pocket when he was assassinated is fungible from the point of view the grocery store that will trade you a pack of gum for it, but not from the point of view of a collector. The sats from UTXOs originating in North Korea are fungible with those emanating from a block reward as far as my node is concerned. But that is not the only perspective.
Ordinals themselves are just a way of looking at things. Ordinal theory is literally a method to encode sats. You don't have to look at it that way. You don't have to interpret the ordinal encoding at all. But many people do seem to be adopting the ordinals point of view, and thus all the ensuing mempool sound and fury.
All that said, I'm still not getting what @rodarmor is talking about when he's talking about fungibility.
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No, fungibility is absolutely not a "point of view".
What you describe (collectible value for specific units) is just a mental construct. If you find someone to pay you $1000 for a $10 bill with "historical value", it's just an oddity — and a P2P agreement between 2 people that decided this banknote was special to them. But it doesn't change the fact that the $ is a fungible currency.
Again, this is completely different with a standard NFT collection (typical PFP collection of 10,000 items for instance), where each end every token is unique, usually with different properties. These tokens are non-fungible "by design".
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Fungibility is subjective. Some things have characteristics that make it harder to tell individual units apart, and thus people will be more likely to treat them as fungible.
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I don't know what to tell you other than what I've told you. You can have your definition of fungibility if you want, but it's not the one that has force in the actual universe. The very nature of money itself is a social convention in regard to how other people will interpret some symbolic construct. The subjectivity of that interpretation is the most real thing that there is as far as these things are concerned. Mises made this argument as forcefully as anyone could desire.
The fact that I can give you ten bucks and you'll do ten bucks worth of stuff for me is nothing other than a mutual point of view of what kind of behavior that ten-note ought to elicit. If you have preferences about which note you receive, then the notes are not fungible from your point of view. If everyone in the United States shares your point of view, the notes are, for all practical purposes, no longer fungible. If some entity can exert an overwhelming force about what our collective points-of-view ought to be, then it can often get its preference about what is equivalent to what.
The NFT example is useful because it shows how a protocol can support fungibility directly -- it can make a protocol-level distinction that X is not equivalent to Y. But protocol-level distinctions are not the only distinctions that matter, as various legal actions have demonstrated.
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If I delete the .png files from a NFT collection they are just a regular token like bitcoins
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I'd guess he mostly trying to distinguish them from non-fungible tokens.
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