If 10% of $20 bills (by serial number) were not considered legal tender, then $20 bills would no longer be fungible.
The ramifications are the important part. If 10% of bills are essentially fake money, you have to verify every bill you handle, adding significant friction.
More than 20 years ago when I worked a retail job in college we did verify every bill >= $20. It was easy: a simple marker revealed if it was counterfeit, along with something that revealed watermarks etc. It wasn't much friction, it took a few seconds.
Fungibility has nothing to do with dollar bills and everything to do with dollars. You can't make a withdrawal from a bank after two years and ask for the same dollar bills back that you deposited.
but it does have to do with the dollar bills. The discussion centers on the technology as a currency and money. I think these things have bee separated in our general understanding of things, but in bitcoin they are melded into one. You control the outputs on the blockchain. The dollar bills on the blockchain. Sure, if you deposit your bitcoin at an exchange then yeah, you will get different bitcoin back, but the discussion isn't about that. It's about how the blockchain system works. And the way it works is that when you use bitcoin, and you own bitcoin, you do sorta ask for the same dollar bills back that you deposited. You don't really "deposit" them on the blockchain, but you kinda do. You deposit proof of ownership of a unit of account. Bitcoin calls it an output, a monero dev has coined the term e-note (or adopted the term i dunno) to try and better describe what it is.
maybe you know all this i dunno. if you do, slap me around a bit. if you don't, i hope this makes sense.
Haha well, no slapping necessary. I like to think I'm right but would love to be proven wrong.
It's important to distinguish between fungibility and tracibility because fungibility is an extremely important property for a currency to have, and without it it's all but useless.
Theoretically, if the US were to go to an all digital dollar, we would functionally have a blockchain (assuming all these transactions were reported centrally somewhere). This would not have changed the fungibility of the dollar, because the dollars you get in your paycheck are still the same as the dollars you get back as change or the dollars someone Venmos you for cocaine. Once they're in your bank account, there's no way to separate out which dollars came from which source. Now, you could pay someone to give you money with a "clean" history, but you're not paying more money for those dollars, you're paying someone for the service of giving you dollars with a clean history.
The ramifications are the important part. If 10% of bills are essentially fake money, you have to verify every bill you handle, adding significant friction.