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You do realise that Bitcoin is experiencing much more inflation in its supply than the USD or the EUR, don't you?

The bitcoin supply is increasing, at high, but shrinking rates, however its purchasing power is still increasing despite that inflation.

This suggests that demand for bitcoin is exceeding the supply rate.

If the demand continues, and the supply rate of bitcoin will be almost exhausted in a couple of decades, then the value of bitcoin will likely rise in response.

This is of course, ignoring that volume of bitcoin in circulation is actually shrinking with time[1], because people are hodling rather than trading it. Evidence that Gresham's Law is playing out as usual.

[1]: Age of bitcoin UTXOs is increasing over time. https://cdn-images-1.medium.com/max/1000/1*JopnHwBLMAOn-i2v4...

> You do realise that Bitcoin is experiencing much more inflation in its supply than the USD or the EUR, don't you?

So, I argue that it seems likely this would happen; someone will figure out how to fractional reserve the stuff, the gain is too great. But do you have evidence that it did happen? what was the mechanism?

> someone will figure out how to fractional reserve the stuff, the gain is too great. But do you have evidence that it did happen? what was the mechanism?

If the transaction is not on the blockchain or is not directly tied to a blockchain transaction (like with LN/payment channels), you MUST assume there's a fractional reserve going on, as you have no way of confirming otherwise.

If it is tied to the blockchain, it can't be a fractional reserve.

I agree completely.

But my impression was that actual blockchain transactions were cumbersome and slow to verify, and that most people, especially most investors, have some other party holding their coins or otherwise invest indirectly.

Fractional reserve is not about transactions, but about backing for the underlying assets these transactions are "moving".

LN/payment channels are payment methods (think checks or credit cards), while traditional "cryptocurrencies" are systems or records or ledgers (think banks).

The assets are fiat cash and cash-equivalents (electricity, hashing power) inflows. I.e. when somebody mines or buys Bitcoin - money flows into the system, when somebody sells Bitcoin - money flows out of the system. So most cryptoassets today are fractional reserve.

BTC supply is capped at 21,000,000

The US government has 20,000,000,000,000 in debt. Today USD might be better, at some point debt will need to be paid back.

that's not how debt works on a national level.... it's not like personal debt at all

I know this is true when the debt is issued by the currency issuer & denominated in that same currency, such as in the case of the United States.

Is that also true in the case of say, Italy's debt denominated in Euros or Illinois state debt denominated in USD? I have been meaning to read Steve Keen's work on this

when Italy was on the lira yes, with the Euro no. Look at how the Greek crisis unfolded.

the 20T will have to be paid back. Unlike personal debt the fed can just print the money. There is currently around 6T in existing money supply (though I havent checked recently).

The question is how will the debt translate to increased money supply over time (inflation).

> Unlike personal debt the fed can just print the money.

A part of why the Fed (and the same is generally true of independent central banks generally) exists (and why the Fed system is comprised of large private banks) is to provide a check (and, more important, confidence among lenders) against Congress simply monetizing the debt by separating the locus of decision making for monetary policy from that for fiscal policy.

Historically that often doesn't really happen with such debts. Instead the debt falls a percentage of GDP due to GDP growing, at least in nominal terms.

It is happening, though. Especially now with tax cuts and increased spending.

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