Change-up from all the recent 'number go up' and 'should I sell X to buy bitcoin' posts to something more theoretical. If (/when) bitcoin succeeds and becomes the global reserve currency, there will still be mismatched maturities, paper/fiat bitcoin, bank runs, bank failures, etc.
Many (probably most) people would not own their own bitcoin, they would own fiat/paper representations of bitcoin. The supply of fiat/paper bitcoin would grow beyond 21 million just like the supply of paper during the gold standard was inflated well beyond the total gold supply.
The main difference (or one of many), is that the government/central bank will not have the power to step in as 'lender of last resort' because they will not control layer 1. When the banks start to fail, and people attempt to exchange their paper for on chain BTC, the banks will go bust, and no one will be able to protect the wealth of anyone who did not hold their own BTC on chain.
Thoughts on this?
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