people who deposit their bitcoins in a fractional reserve institution will lose their bitcoins at some point. it is inevitable as bank runs on fractional reserve entities are not a question of if but are a question of when.
Right, but that really doesn't matter. People are so risk averse they miss the big picture. Yes, you will suffer the occasional total loss, but it can still be worth doing. Especially when the alternative is a constant slight drag and the probability of total loss is low.
A few months ago, I was explaining community credit to a man who owns a grocery store. He brought up the possibility that someone would default on their debts, even someone who had built up credibility through hundreds of legitimate transactions. My conversation with him basically went like this:
Me: Suppose that one out of fifty people did that to you. It would be like one out of fifty people walked out of your grocery store with all their normal groceries but didn't pay a dime.
Him: Exactly. There's no way I could stay in business if that was happening. It would be a disaster.
Me: A lot of your customers pay with credit cards, right?
Him: Yeah. Lots.
Me: How much do you pay on those credit cards? 2%, 2.5%?
Him: Yeah, about that.
Me: 2% is 1 in 50.
Him: *lightbulb goes on*