Bitcoin is fungible on the protocol level, but is not fungible in practice in the real world because it's history is not private. Public history is an attack surface.

We can have pockets of fungibility within Whirlpool, but as a whole it is not fungible.

Is our goal p2p digital cash?

If I hand you a $100 bill, you only see our immediate transaction. Unless I choose to reveal where I got it from (default privacy) and even then I can only reveal my own history with the bill (view key).