One of the most neglected portions of “transaction costs” is that of the cost of holding an asset.
Examples of holding costs
If one holds fiat currency (i.e. in the form of currency notes or coins), the fiat currency runs risks of official demonetization, devaluation or of theft. Similarly, just holding currency at 0% interest in a bank account, will lead to a gradual loss on account of inflation. Periodically, since the beginning of the existence of fiat money, governments all over the world have retired old currency notes in favor of new ones – sometimes at a jiffy in mass exercises such as demonetization. Occasionally, governments and international monetary systems have devalued existing currencies suddenly. Eg. in Venezuala
If one were to store gold in a bank locker there is a cost to rent the bank locker. Similarly, there is a cost to purifying the gold once it has to be sold after holding it for many years, and so on.If one were to hold other forms of assets e.g. vintage Cars, real-estate, etc. the cost of holding the asset at least equals the cost of insuring the asset and the governmental tax rates prevalent.
In all these cases though significantly smaller than the value of the asset, the cost of owning the asset and holding it proportionally increases with the value of the asset.
Cost of holding is almost Zero with Cryptocurrency
With cryptocurrencies, the cost of holding an asset can tend toward Zero, irrespective of the size of the asset. With cryptocurrencies, while the general thought is that one needs at least own a mobile device or a computer or an online wallet to store the asset, this is not a pre-requisite. If one were to write down ones private keys on a piece of paper, that would suffice to access one’s holdings and to later either transfer or exchange it for fiat currency.
Similarly, if one were to have access to hardware wallets like ledger or software wallets like exodus.io, a series of strings (words in the English language) would be sufficient to access one’s assets anywhere globally.
One could with memory training also significantly remember the passcode or the 12 words needed to recover the wallet. The incremental costs of holding cryptocurrency is also zero, on account of the same mode (wallet address) capable fo holding any incremental value..