@cryptomined Zcash solves fungibility completely and I’ll try to explain how…
There is no intrinsic “history” stored inside of a coin itself, the history is entirely contained within the blockchain, which is essentially a plain text database containing every single transaction since the genesis block. With a completely transparent blockchain like Bitcoin, one can easily trace each coin all the way back to the block in which the coin was created (i.e. when the miner received the coin as a block reward). Because of this transparency, one Bitcoin is not necessarily equal to another. Merchants may refuse certain Bitcoins because they have a tainted history, such as being used in illicit transactions. Certain addresses may be blacklisted, which could lead to a chaotic system of good and bad Bitcoins.
Zcash removes the possibility of “bad coins” through encryption: When using z-addresses, the transaction amount, along with sender and receiver addresses, are encrypted on the blockchain. A person can only view the transaction amount or sender/receiver addresses if they have a specific view key, which is controlled by the sender. Therefore, there is no plain text history accessible through the blockchain. The transaction history is still stored on the blockchain, but only in encrypted form. You need the view key if you want to actually see the details of the transaction.
Without a fully transparent transaction history, there is no possibility of performing blockchain analytics to the same effect as with Bitcoin. Using a z-address, it becomes trivial to “wash” coins in a way that permanently obscures the coin’s origin. Tracing the coin backwards through it’s transaction history will only allow a person to trace it back to it’s last encrypted transaction. Passing your coins through a z-address will be sufficient to obscure any prior transaction history.