Virtually every bitcoin user already uses third parties, and trusts them to some extent. Doing so is a trade, cost for risk. In the future, I expect it to be even more complicated. Imagine a credit card denominated in bitcoin. With that, you'd be paying for them to assume transaction risk for you, while right now the model is mostly the opposite with you getting a discount for assuming the risk that the third party may bail with your bitcoins.
Right now trusting third parties is an optional choice that a user can make. In a scenario in which the demand for transactions exceeds the protocol-specified limit they won't have a choice - the only way average people will be able to use Bitcoin at all is to let a third party hold their coins for them. At this point Bitcoin is dead because it's become just another Dwolla or PayPal.
Bitcoin's main innovation is not that you hold your own dollars.
The mad scientist in me thinks that we should wait until the 1 MB limit is met and sustained for a while before we raise it. That way we'd get some real world experience with how the system (including the people!) react.
Imagine an accelerating car driving into a brick wall. One day the number of users and transactions will be increasing exponentially and then suddenly the growing user base will be rationed to a fixed number of daily transactions. It won't matter how much the users are willing to pay in transaction fees or how much the miners are willing to provide a higher transaction rate - the network will be limited to a constant number of transactions. It's madness to blindly assume that Bitcoin will continue to be useful and in adoption after its use case is fundamentally
reversed.
Right now the demand for transactions is below MAX_BLOCK_SIZE, so effectively we have no limit. What we're looking at right now is how users and miners behave with "infinite" block sizes. Users are willing to pay fees, and the fee revenue grows proportionally with the transaction rate. We don't have to speculate about this because the real data is available. Allowing Bitcoin growth to suddenly hit an artificial limit really is playing mad scientist with what will be at that point a multi-billion dollar economy. Incidentally that kind of central planning is exactly what many people are adopting Bitcoin to getaway from and you're ready to pull the rug out from under them right when they least expect it.
I can imagine all sorts of things. What I'd prefer is to have some data so that I can spend less time imagining.
The brick wall thing seems like a particularly silly analogy. People are
already competing for block space with fees. Why are people doing that when block space is effectively infinite? Why are miners encouraging that when the fees are so meaningless in comparison to the subsidy? It seems like the car hit a wall of jello a couple of miles before hitting the brick wall.
Where you see a brick wall, I see a ramp. The way ahead gets steeper when we hit the block size cap, but nothing stops or explodes. If the demand for transactions stays steady or increases, then on-chain transactions will get more expensive, which makes off-chain transactions cheaper by comparison. What I want to know is, how much cheaper? How well will people innovate? Are people willing to pay enough in fees to keep mining going as the subsidy declines? What is the actual marginal cost of including a transaction? How will that change over time?
There are a lot of question marks between where we are and where we want to be. It seems imprudent to
assume that they will all be resolved to our liking.
