So where’s the productive output?
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).
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.
What externalities are you talking about?
What does do you mean by a transaction to paying for itself?
What does it mean to lower transaction costs in a zero-sum way? This seems like a contradiction
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.
[1] https://en.wikipedia.org/wiki/Free_banking
[2] https://ciaotest.cc.columbia.edu/olj/cato/v24n1-2/cato_v24n1...
An externality is "an indirect cost or benefit to an uninvolved third party that arises as an effect of another party's (or parties') activity" [1]. If Visa reduced its fees, the merchant's additional profit is an externality.
> understand the definitions of externality is changing in popular usage
Third-party economic consequences have always been the definition [2].
Wikipedia doesn't go too deep into when externality analysis is appropriate or useful, but hints at this in the following sentence to the one you quoted.
>Externalities can be considered as unpriced components that are involved in either consumer or producer market transactions
Something like the advent of centralized currency isnt a priced good or action, so it doesnt make sense to say it has a positive externality (e.g the transaction price of "centralized currency adoption" is not a priced object).
This is why it is more appropriate to say something like the advent of centralized currency has consequences instead.
Regarding the Visa example, the merchant isn't a uninvolved 3rd party, so the profit is not an externality. Value on the table during an economic exchange is not an externality. Similarly, the value created or lost for each interacting party is not an externality.
One more thoughts on common externality misconception.
The general connotation is that externalities describe pricing failure and market failure (e.g. pollution). The usefulness externality analysis breaks down quickly when you move from realized external costs or benefits to opportunity costs or benefits.
If a $1 pill saves a worker's life, is the value that person generates over the remainder of their life an externality. Technically yes. If you sell them a pill again a year later, the same is true. That doesnt mean the pill is priced incorrectly.
This illustrates how externalities can be duplicative and should not be confused with pricing errors.
Of course it is. Joining a currency union carries costs.
Broadly speaking, you're correct: the term has ambiguous meaning. My point is that isn't something new, but an element that has always been with the term.
Two actors can both generate value from a transaction due to a difference between price and their respective utility value for what is traded. This producer and consumer surplus is explicitly distinct from externalities.
If there is a currency deal between the US and Argentina, the consequences to those countries are not an externality. However, if this deal produces a 2nd order change in the Chinese RMB, some would call that an externality, although I would call it a consequence (because externality implies mispricing)
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.
—- 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.
EDIT: Format, grammar