Actually the Bureau of Engraving and Printing will replace damaged or destroyed US currency if they can determine to their satisfaction how much has been destroyed. They replace over $30 million of currency yearly. The most common causes of mutilation are are fire, water, chemicals, explosives; animal, insect or rodent damage; and petrification or deterioration by burying.

See http://moneyfactory.gov/uscurrency/damagedcurrency.html There's also an article with some interesting stories: http://usatoday30.usatoday.com/news/nation/2001/06/2001-06-0...

[I'm not intending this as an argument about Bitcoin, but as something people might find interesting.]

Read a story, man's dog ate several hundred dollars, man fished remains out of dog poop, US government printed man new hundred dollar bills.

Damaged US Currency can be replaced ONLY if: (1) 51% or more of the bill is recovered (in some form) (2) the serial number of the bill can be identified

(Or at least that's what I was told during a tour of a US Mint several years ago.) Money burned up in a fire is not replaceable.

Except it can be reprinted. The cash is gone, but the total money supply is not irreversibly reduced.

Correct. Except most of us don't keep all our money in our wallet or under our mattress. We keep it in a bank. Which is insured by the federal government. Bitcoin is akin to keeping all your money in a big bag in a single location if you don't back it your digital wallet offsite.

That is the local effect, which is the same for cash vs bitcoin and different for deposit vs bitcoin (though of course there is nothing preventing bitcoin-denominated deposits). The global effect for bitcoin is more like nuking a bit of gold - you have reduced the total supply permanently - whereas for cash we can just print more.