For the economic impact of monetary systems, the main role of currencies is handling credit - handling direct transactions is intuitively the direct application, but the impact of transaction costs ('costs' in the economic theory sense, not only the direct expenses but also any barriers, difficulties, risks, etc) on the economy, while significant, is not as huge as the impact of availability of credit and supply of money.
For example, when considering dollars, having the possibility to detach the dollar from the gold standard was so extremely valuable to the economy that all the possible transaction costs with handling paper or coins are a rounding error compared to that. Enabling fractional reserve banking is an immense effect on the productive output, due to the big increase in productive investment it enables, so it matters a lot whether a monetary system can support that. Historical changes to what metals were used for coins had a huge impact on economy not because of some decrease in transaction costs but because of changes to money supply. Etc.
At it's core, the primary function of finance is (and arguably has historically always been) handling debt, not handling transfers. So evaluating a currency system on the basis of how good it is for transactions is kind of putting the cart ahead of the horse, if the nature of that currency has, as most cryptocurrencies do, a major impact on the money supply (and thus handling debt).
This is correct, All currencies have transaction costs, but compete on having lower transaction cost than the alternative.
The theoretical maximum is zero transaction cost for a transaction. It cant go positive. Components of transaction cost are triangulation, transfer, and trust. Currencies attempt to lower the cost of the transfer and trust components.
Any positive value a currency claims to have as method for settling transactions is just a differential with another method.
There is a cost to going to an ATM and carrying USD cash, but it is lower than carrying around 100lbs of cabbages to barter with.
Don't forget externalities. E.g. you can get a fee-free bank account with fee-free cash withdrawals, courtesy of the bank being able to loan out that money under fractional-reserve restrictions. In that sense transactions can pay for themselves. Presumably nobody would print money if it wasn't being put to use. Hence, novel currencies can enable novel business models and potentially do more than just lower transaction costs in a zero-sum way. (Admittedly the value of such business models at present, e.g. crypto scams, is somewhat debatable)
Economic activity. Switching from free banking [1] to a centralised currency made trade easier in America which increased the amount of trade. It's why monetary unions work [2].
Bitcoin, similarly, has enabled certain modes of trade that previously didn't exist.
I think that is more of consequence resulting from lower transaction costs, rather than an economic externality. That said, I understand the definitions of externality is changing in popular usage.
Your right on the first point, but I would consider the “productive output” to be the product and services that ultimately drive the trade. While there are plenty of contemporary hedge funds that would disagree with me here—with few exceptions, simply moving numbers around, constructing high-level abstract financial instruments, and/or arbitrage trading is not what I would consider productive activity. After all, if there are no firms designing widgets, mines digging up widget ore, factories making widgets, logistics moving widgets, stores selling widgets, technicians supporting widgets, or consumers using widgets, then there quite literally is no market.
Cryptocurrency has precious little to demonstrate itself as an analogous store of value to legitimate, organic market activities. It’s primarily been a tool for speculation, as well as evading regulatory and legal scrutiny. I believe Bitcoin has been an incredibly valuable and unique experiment, a fascinating exploration of human nature and our culture of trade. Much of the technology behind it, like the blockchain have found useful applications, but mostly outside of cryptocurrency proper. But it’s been long past the point where, if cryptocurrency had a unique purpose with which it was particularly suited towards, it should have found that purpose by now.
If one takes a strictly amoral perspective, then I suppose the cultivation, manufacture, transportation, sale, and consumption of illegal drugs would technically fit within my prior definition of “productive output”. Whether or not that’s worth its own overhead, complexity, inherent risks, and the collateral consequences to most/all of the humans involved with that productivity is a larger question…and to be fair, a lot of those concerns are nothing new or unique to cryptocurrencies.
But if the intention is to weigh a given currency’s efficacy and inherent value against a broader slate of considerations then, in my opinion, the most definitive distinctions by far between cryptocurrencies and traditional sovereign fiat currencies is the tangible, productive, economic output of its respective national domestic industries that naturally selects and underpins its perceived value and stability.
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TLDR; it isn’t some collective delusional belief that makes a dollar worth a dollar, but rather the aggregate sum of the American people’s labor and dynamism, which isn’t nearly so easy to handwave away, as some of the more myopic cryptocurrency advocates have been known to do in an attempt to undermine traditional financial systems, and draw a misleading distinction between fiat currencies and cryptocurrencies.