Bitcoin's Fungible

To a full node running Bitcoin software, any given bitcoin is identical in nature to any other.

However, because the blockchain is a public record, and real-life identities may be linked to transactions or addresses, some Bitcoin users may choose to treat certain bitcoin differently than others. For example, a transaction may not be accepted by some users if the sender is linked to criminal activity. This is similar to how bank notes with serial numbers linked to robberies may be refused by some people.

Under certain circumstances though, it is possible to break the link between real-life identities and bitcoin units (or more specifically, UTXOs). This can allow users to regain previously lost transaction privacy and restore full fungibility.