If the transaction throughput was not limited in the original design the original design was flawed. Removing the transaction limit from Bitcoin could be it's undoing.
I've always found your posts insightful and I know that you are a very intelligent person; I'm interested in your rationale for keeping the blocksize static.
The argument that "if the blocksize doesn't really matter, then why was a limit added?" seems valid to me. A smaller blocksize also limits growth of the UTXO database, which is actually the more critical resource. I'd like to see a healthy fee market develop along with a push towards off-chain transactions (perhaps using m-of-n Oracle sidechains). A smaller blocksize would incentivize that. That being said, Solex recently presented a helpful graphic that showed the increase in internet bandwidth since bitcoin's inception, indicating that 3MB blocks now would represent the same % of typically-available BW as 1 MB blocks did in 2009. So the argument can be made that "we can safely increase the blocksize in parallel with internet speeds." The Metcalfe value chart also shows a strong correlation between TXs per day and market cap, so an empirically-based argument can be made that limiting bitcoin's TX bandwidth would also limit its value.
One point you made that I think is not valid is the notion that a 1 MB blocksize is a core part of the coin's definition (i.e., part of the "Satoshi Social Contract" in the same way the 21 M coin limit is). There's plenty of evidence that indicates the 1 MB limit was never intended to be permanent. Of course, this doesn't mean that it's necessarily a good idea to increase it without careful thought and debate either.
Okay sure
For miners, the cost lies not in including transactions. Say the situation where a miner includes n transactions in a block or n+1 is equivalent in cost*. The cost for a miner lies in hashing the block with a nonce so the hash starts with a certain number of zeros (the difficulty).
Anyway, if I am a miner and I'm hashing away, I'm going to include every single transaction that pays any fee whatsoever in the block I'm hashing (if the block size is unlimited) simply because it costs me nothing to add the transaction and it does increase the amount I'm gaining when I find the right hash. Therefore, considering the situation with no size limit for a block and a set of rational miners all transactions will have a long term transaction fee of 1 Satoshi (or whatever the minimum unit is for the transaction in that time in the future).
Therefore the miners will receive payment of 1 Statoshi*the number of transactions for their job of securing the network and I believe this is insufficient as it would require 25*6*24/1^-8= 3.6*10^11 transactions daily to match the current block rewards. Granted, the exchange rate will increase in that time but not by a factor >10^6 (a factor 10^6 would imply $580M per Bitcoin).
Of course, in today's situation not all transactions are accepted even though we haven't touched the limit yet. This is because miners are not yet acting rationally but merely accepting the default recommended transaction fee guidelines proposed by the devs. This makes sense because the subsidy is still so high in comparison. It's a bit naive to think this situation will continue indefinitely though with an infinitely decreasing block subsidy.
Conclusion: for transaction fees to ever pay for the securing of the network a limit on the block chain is indispensable. Granted, this limit could have been larger than 1MB. However, if we increase it now, this will make it easier to increase it in the future as well because we create a precedent. As such it would continuously increase undermining the whole system. It would be like saying: we'll increase the maximum available Bitcoins to 100M. yes we'll only do it this once. Sure
no-one will believe that.
The actual numbers may be arbitrary. Keeping them static however is far more important than people in this topic seem to realize.
Anyway, please tell me I'm wrong. I love being wrong
. Please explain to me why anyone would pay a transaction fee above 1 Satoshi when the block subsidy has run out and the block size is not limited.
*I'm simplifying the situation here for number of transactions to be able to talk about it more naturally. It seems obvious the same holds for number of bytes in the block.
