Glossary

Fungibility

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Fungibility is a property of goods which are interchangeable and indistinguishable. For example, pennies are all worth $0.01 and ownership of one penny is not preferable over any other penny.

Fungibility is a desirable property for Bitcoin in order to maximize Bitcoin’s utility for individuals. If certain bitcoin are considered tainted, perhaps because of past ownership by criminals, those bitcoin could be deemed less valuable by regulated merchants or exchanges. Merchants could be required to check each bitcoin received to ensure they were not tainted. These restrictions would place immense burdens on consumers, merchants, and exchanges, discouraging adoption of Bitcoin.

Privacy mechanisms such as CoinJoins attempt to ensure that bitcoin remains fungible in the future by providing a secure way of obscuring the past ownership of certain bitcoin, rendering the concept of taint unusable.

Related Terms
Taint
Taint is the concept that certain bitcoin are riskier or less acceptable because of their previous owners or possible links to illegal activity.
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Chain Analysis
Chain analysis uses heuristics to analyse the blockchain and trace ownership of bitcoin across transactions. Chain analysis is performed by companies who contract with governments and regulated institutions to provide insight into how individuals send and receive bitcoin.
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CoinJoin
CoinJoin transactions provide increased privacy for users by breaking the heuristics used by chain analysis companies. A CoinJoin transaction combines inputs from several users and returns to each user the exact same amount, making it difficult to track users and their coins.
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