People thought gold was safe, too. Then bankers invented paper gold certificates.

You're right that this new verification technology makes it possible for people who really care to have high confidence in the integrity of the reserves. However, there will be bad actors who obfuscate what they're actually doing and lure in customers with the promise of higher returns.

Undisciplined

Agreed, that has historically been the temptation.  In the brave new world of blockchains, though, I think we have a means to put an end to that -- define the fractional reserve limit in advance, and make it visible to all.  I suspect this is inevitable, and we'll see in practice how it shakes out.

elvismercury

bitcoin

_Broken Money_ book club, part 2

I haven't done a deep dive into this debate. I know much ink has been spilled on the question.

However, I think even in a framework of contract based fractional reserve banking, the temptation to cheat would prove irresistible. If the contractual arrangement specifies a 10% reserve, some lenders are going to push it to 9.9% and hope they get away with it.