The difference between fungible and non-fungible is often illustrated using banknotes and children. Apparently when dropping children off to school and later picking them up people prefer to pick up a very specific child (the same they dropped off).
On the other hand, banknotes are explained to be fungible, as it’s quite the same to you which banknote you will receive as payment or part from when buying something.
Yet, banknotes are not identical. Each one is actually unique, with its own serial number and different physical imperfections. Their fungibility is a social convention — we as society need them to be as fungible as possible so we squint a bit to pretend they are.
To help with that the process of producing banknotes is an industrial process with quality control. The machines that print the notes are made and maintained to a high standard with the goal of producing each banknote as similar to others as possible. No two ones are ever identical, of course, there are always micro imperfections.
If imperfections of physical objects could be accurately recorded they would comprise a very accurate digital fingerprint of the physical object.
Banknotes are easy to counterfeit given access to special equipment and materials, such as those that were used in production.
Yet if the producer could record and store a digital fingerprint of each banknote they produced it would not matter even if counterfeiters could rent and use the same machines on a different day!
The precondition for this to work is for resolution of scanning equipment to be ahead of the accuracy of manufacturing equipment. As long as it holds that
scanning resolution > manufacturing resolution
a digital fingerprint can be recorded (and later scanned) more easily than it can be forged. At the moment this probably means around a millimetre range. Of course, if there were only one millimeter-sized scratch on the surface of a physical object a manufacturer could forge the object given enough time and enough monetary incentive (which is there for very expensive goods).
So let’s introduce another variable: pixel resolution, and let’s clarify the terminology because resolution in common speak means both physical size of a pixel and number of pixels. The formula is then:
scanning resolution * number of pixels > manufacturing price for matching physical imperfections pixel per pixel
Interestingly, this means that unlike the manufacturing processes of old, where the manufacturers’ goal was uniformity of final products, now they will strive to make the differences between units as large as possible as long as the desired functionality and aesthetics are not affected.
The beautiful thing is that manufacturing with tiny imperfections does not cost more, it probably costs the same or even a bit less than when going for maximum uniformity.
On the other hand, forging a physical object does cost more the more imperfections there are to forge. In fact, given that objects are three-dimensional and each imperfection has three coordinates, forging probably becomes prohibitively expensive even at a rather small number of small imperfections.
We are there! The lidar technology is becoming cheaper and coming into mobile phones and it allows for scanning with millimetre resolution and recording a large number of 3D data points about physical objects. This means that for physical objects of sufficient complexity manufacturers can already record digital fingerprints that customers can verify on their phones and that are too expensive for forgers to forge.
A threshold has been crossed once 3D scanning came to mobile phones. As technology progresses it is likely that high-resolution scanning equipment will maintain an edge over high-resolution manufacturing equipment.
This is great news for consumers! When buying a physical product you mostly don’t care which exact one (it’s fungible to you), yet you care about provenance. That you get the original product will be ensured by leveraging its non-fungibility.
A great example of how intertwined the concepts of fungible and non-fungible are.