Larger blocks require more resources which harms decentralization.
Indeed, but technological resources are increased over time, thus allowing higher capabilities at same costs (over the years).
As I wrote a few posts ago, in 97, my bandwidth, cpu, storage, ram, was 1/1000th of what I now have.
My pc could probably process ...1kb blocks back then... now 1mb... in 20 years, maybe 1gb.
Satoshi never intended for the 1mb to be set indefinitely. He said, we'll raise it when needed.
Obviously you don't want to have too much, because then it hurts in decentralization and leaves the door open for spamming the blockchain.
It just needs a proper balance.
I think the choices that exist right now may not be enough to gather a good consensus (like 90%+) which may in turn create the need for a new proposal.
- BU is trash, nobody in their right mind wants it.
- Segwit will not get adopted because it increases "complexity" and it makes some miners uncomfortable (translation for: "I like the bitcoin I know, I don't want it to change, with the remote chance it introduces unknown risks")
So, given that neither will go ahead, we'll have to make some other arrangement like a 2mb upgrade in the short term, if we don't want to stick with 1mb. But this option doesn't exist right now and should be programmed and provided by core (=reputable source of code).