Fungible currencies require that any two units of value, in the same amount, have the same value. This may seem simple at the outset; after all any two US Dollar Bills are worth the same, and most traditional currency that people use is fungible by nature. But what if the SEC were to "ban" the use of particular US Dollar bills based on their serial numbers? In such an event, then "banned" US Dollars would be worth less than the "un-banned" US Dollars, and the US Dollar would no longer be fungible.
Recently, on the Ethereum blockchain, the SEC did begin implementing currency bans in exactly that manner. A smart contract program running on Ethereum named Tornado Cash had been running for quite some time, which allowed people to mix up the transaction history of their Ethereum tokens, with the transaction history of many other tokens of that same type. This effectively made it impossible to tell where a person got their tokens from in a process called "tumbling". The SEC didn't like that tumbler technology, and so the SEC "banned" any US Citizen or Business from associating with addresses that had interacted with the Tornado Cash tumbler system. Overnight, Ethereum tokens that had been run through Tornado Cash, at any point in their transaction history, were made less valuable than Ethereum tokens that have never been "tumbled" with Tornado Cash.
As a result of this unfortunate decision by the SEC, not all Ethereum tokens are now fungible. Users of the Ethereum network are now left with the almost impossible task of figuring out if any of the funds they received have been "banned" or not. To make matters worse, users can simply deposit a small amount of "banned" Ethereum tokens inside of any other Ethereum address, and the entire contents of that target address can be tainted. Clearly that is unfair, as the owner of the target address may not have ever even heard about Tornado Cash nor of coin tumblers, and yet their funds could be made to be tainted by any other person that simply knows their wallet address. Additionally, Ethereum is a public blockchain, so all addresses and transaction histories are clearly visible to everyone on the blockchain, making it impossible to protect oneself.
The Future Really Is Fungible. There are many blockchains available today, including Bitcoin, Polygon, Fathom and Tron and many others, and almost all of them allow the public examination of addresses and transactions on the chain itself. For this reason, with the simple passage of new policy by the SEC, and the subsequent distribution of "banned" tokens to other randomly selected addresses on the chain, those blockchains can now be rendered un-fungible as well.
Obviously this situation is untenable. The multi-billion dollar blockchain industry has been put into a difficult predicament by the SEC, and the private funds of many users are now at risk. Fortunately, there is a solution. There are blockchains which do NOT allow the open examination of the addresses stored on them, and that do NOT allow users to tell where funds had been transferred from. Such blockchains are called Privacy Coins, and until now these systems have been in the minority in the crypto industry. This includes coins such as Monero, and it also includes my favorite project named Fedoragold.com.
These Privacy Coin systems run on a unique blockchain algorithm called CryptoNote, which does not publish the contents of addresses and transactions for public access, but instead encrypts that information, making the balances and transaction history of Privacy Coins a private matter. The users of these systems can still prove that they have made payments by retaining the encryption key used when sending those funds, using a value called the "proof-of-payment". However if a user does not have access to that "proof-of-payment" value they cannot determine where the funds were sent and in what amount. Therefore, on a Privacy Coin blockchain, it is impossible for the SEC to "ban" addresses and the funds that accessed those addresses, because it is impossible to obtain the transaction history of addresses on these systems.
I know that very few users know about and use Privacy Coins on a daily basis. But, IMHO that situation is about to abruptly change. If you hold funds in any network that can have SEC "banned" addresses, even if those addresses are banned at any time in the future, then your funds on those networks are NOT actually fungible, and your hard earned funds may not be worth as much as funds unassociated with those banned addresses. Further, since anyone that has "tainted" funds can simply send you some of theirs, it is impossible for you to defend yourself against this unfortunate occurrence.
And so, the Future really will be Fungible. Eventually people will learn, and perhaps most will learn the hard way that holding value on permanently fungible networks is the only solution. Privacy Coin blockchains are the future of fungibility, and therefore the only way to protect your value long term.
