In law and finance, something is fungible when any one unit of it is interchangeable with any other unit of the same kind. A dollar, a barrel of a given grade of crude oil, and a share of common stock are all fungible: swap one for another and nothing about what you own has changed. The label matters because it decides how goods get traded, how shares get taxed, how mixed inventories get divided, and whether a court treats assets as a mass or as specific items you can point to.
What Makes Something Fungible
A good is fungible when the identity of the particular unit does not matter — only its measurable qualities do. A buyer ordering 1,000 bushels of a specified grade of corn cares about weight, moisture, and grade, not which kernels arrive. Shares of the same class of stock trade the same way. So does money.
Fungible items lack the features that would make a specific unit matter: no meaningful serial number, no individual history that moves the price, no distinguishing marks between units of the same type. That is why they can be traded in huge volumes without anyone inspecting each unit, and why they can be stored together without losing anyone’s claim to a share.
Everyday Examples
Currency is the clearest case. A ten-dollar bill buys the same groceries whether it is new or creased, and a debt can be settled with any valid bills totaling the amount owed. Bank balances work the same way; one dollar in your checking account is identical to any other.
Raw commodities follow the same logic. Crude oil benchmarks are sold in barrels of a defined chemical composition. Gold bullion trades by weight and purity. Agricultural products trade by graded standards, so every bushel meeting a given grade substitutes for any other.1United States Department of Agriculture. United States Standards for Corn
Cryptocurrency occupies an unusual middle position. One Bitcoin is designed to be worth the same as any other, and the IRS treats virtual currency as property without distinguishing individual units.2IRS.gov. Notice 2014-21 But every transaction is recorded publicly on the blockchain, so exchanges and compliance tools can flag coins linked to theft, fraud, or sanctioned addresses. The design is fungible; the practice is not always.
Fungible vs. Non-Fungible
Non-fungible assets are the opposite. A house, a painting, a vintage car, a signed first edition: each is unique, and “another one of the same type” either does not exist or does not satisfy the deal. The specific item is what the buyer bargained for.
Non-fungible tokens apply this idea to digital assets. Each NFT carries a unique identifier on a blockchain and cannot be swapped for another token. The practical consequence is legal: a dispute over fungible goods is argued in quantities and grades, while a dispute over a non-fungible asset turns on identifying and recovering that one item.
The UCC Definition
The Uniform Commercial Code gives fungibility its working legal definition in the United States. Under UCC § 1-201(b)(18), fungible goods are goods where any unit, by nature or by trade usage, is the equivalent of any other like unit — or goods that the parties have agreed to treat as equivalent.3Cornell Law School. UCC 1-201 – General Definitions
The second half of that definition matters. Even where manufactured items have small physical differences, a contract can designate them as interchangeable for the deal in question. If a purchase order for 500 steel bolts treats every bolt meeting a stated tolerance as equivalent, the seller may deliver any qualifying bolts and the buyer has no right to reject specific ones. The designation is enforceable and controls how courts handle delivery disputes and shortages.3Cornell Law School. UCC 1-201 – General Definitions
Commingled Fungible Goods
When fungible goods from different owners are mixed, ownership cannot be traced to specific units. This is routine in grain elevators, oil pipelines, and bulk storage tanks.
UCC § 7-207 lets a warehouse commingle different lots of fungible goods. Once mixed, the goods are owned in common by the parties entitled to them, and the warehouse operator is individually liable to each owner for that owner’s share.4Cornell Law School. UCC 7-207 – Goods Must Be Kept Separate; Fungible Goods
UCC § 9-336 handles security interests after commingling. A lender’s claim on collateral does not disappear when the collateral is blended into a larger mass; the security interest attaches to the resulting mass or product. When multiple secured creditors have claims in the combined goods, they rank equally in proportion to the value each contributed at the time of commingling, and any loss is absorbed proportionally.5Cornell Law School. UCC 9-336 – Commingled Goods
Fungibility in Investment Securities
Cost Basis and Tax Reporting
Because shares of the same stock are fungible, selling part of a position raises a practical question: which shares did you sell? The answer sets your cost basis and your taxable gain. Federal tax law under 26 U.S.C. § 1012 recognizes several identification methods.6Office of the Law Revision Counsel. 26 USC 1012 – Basis of Property-Cost
- Specific identification lets you tell your broker which lot to sell, so you can pick the shares with the highest basis and reduce your gain.
- First-in, first-out is the default if you say nothing; the broker treats the earliest acquired shares as sold first.7IRS.gov. 2026 Instructions for Form 1099-B
- Average basis is available for mutual fund shares and certain dividend reinvestment plan stock, dividing the total cost of all shares by the number held.8IRS.gov. Wash Sales
The wash sale rule exists for the same reason. If you sell securities at a loss and buy the same or a substantially identical security within 30 days before or after the sale, the loss is disallowed and gets added to the basis of the replacement shares.8IRS.gov. Wash Sales Fungibility is what makes the maneuver tempting; the rule is what blocks it.
Restricted Shares Are an Exception
Not every share of the same company’s stock is interchangeable with every other. Restricted securities, usually acquired through private placements or employee compensation, carry transfer limits that make them legally distinct from freely tradable shares of the same class. Under SEC Rule 144, restricted shares generally cannot be resold to the public until the holder meets a six-month holding period, or one year if the issuer does not file public reports.9eCFR. 17 CFR 230.144 – Persons Deemed Not to Be Engaged in a Distribution A holder who owns both restricted and unrestricted shares cannot treat them as interchangeable for Rule 144 purposes and must trace the restricted shares back to the date they were acquired.
Rehypothecation
Fungibility also lets your broker use your securities. When you buy stock on margin, your broker may pledge some of your shares as collateral for its own borrowing — a practice called rehypothecation. Because the shares are fungible, the broker owes you equivalent shares, not the specific ones it pledged. Federal rules cap this at securities worth up to 140% of your margin debt. Fully paid shares and excess margin securities above that threshold are off limits.
When Fungibility Breaks Down
Fungibility is not permanent. Federal law allows courts to order forfeiture of property traceable to criminal activity, including money laundering and fraud.10Office of the Law Revision Counsel. 18 USC 982 – Criminal Forfeiture If stolen funds are deposited and mixed with clean money, investigators can trace the tainted dollars through the commingled account. Those dollars remain subject to seizure, even though they are visually identical to every other dollar in the account.
Flagged cryptocurrency works the same way. Coins of the same type are technically identical, but blockchain analysis can single out units linked to theft or sanctioned addresses, and exchanges that refuse those coins are treating a normally fungible asset as non-fungible based on its transaction history. When tracing a specific asset matters more than treating a mass as uniform, the legal system drops the fungibility assumption and follows the item.