PS: Moreover, long-term movement of transactions to off-blockchain systems is not a bad thing I think, because these operators would serve the non-tech-savvy masses (who don't know how to create safe cold storage etc.), while the minority of tech-savvy people (like >95% in this forum) may continue using the "proper" block chain, at least to a reasonable extend.
Unfortunately Michael, that's the problem I have with a low inflexible block limit (like 1MB), because it is
fees which will determine who gets their transactions onto the blockchain. In the vision of keepbitcoinfree it will only be the large 3rd party banks and services which can afford the high fees (in the order of $20 per transaction at least). The >95% of this forum, tech-savvy types, will be effectively banned from the blockchain. Then we can ask: "Who will run a Bitcoin node to maintain the decentralized network, when they can't afford to use the blockchain for everyday transactions?" Answer. No one. So the network becomes very centralized because only the bitcoin banks and 3rd party systems will run full nodes.
Solex, your arguments do not convince me at all.
First, the "20 USD" that you state is very far-fetched, way too high in my impression. If we consider that the "3rd party banks" (or "online wallet providers", as I would call them) mainly use the blockchain to transfer funds between them, just like in the fiat money system today private banks carry out electronic money transfers of real central bank money between each other, then the capacity of the blockchain would not even be close to exhausted from this sort of transaction. Private banks have to make such transaction today only once per day, so the "bandwidth" for such transactions is enormously low, and enough bandwidth would still be left for normal business bitcoin transactions.
But even if all business and private transactions were practically "banned" from the blockchain due to these 20 USD fees, I would in the end still see a big difference and advantage compared to today's fiat world: In today's world, private people and businesses have no access to electronic central bank money at all (just non-electronic "cash" is central bank money). The rest of today's electronic "money" is actually just liabilities of banks towards their customers. In the "new world", private people and businesses and banks would have equal access to "real" money (the "primary blockchain-bitcoins"), and no private person needs to put his life-time savings into bank accounts with consequences as we have recently seen in Cyprus.
Secondly and
more importantly, I would
draw exactly the opposite conclusion than you w.r.t decentralization of miners (=bitcoin network nodes)! Think about it, please. You seem to confuse the
concepts of bitcoin USERS and bitcoin MINERS, or at least you seem not to separate these two concepts. If transaction fees grow to an equivalent of 20 USD/transactions as you suggest, then this means in tendency a centralization of USERS, i.e. mainly those who transfer large amounts of bitcoins (like online wallet service providers, private persons buying real estates, or big companies) will have the "privilege" to use the blockchain instead of off-blockchain transfers of liabilities (=equivalent to today's bank transfers). But this is of no relevance for the miners! From the MINER point of view, there is a certain amount of traffic going on, the miner does not care who is generating this traffic, whether a bank or a private person. Thanks to the high TX fees it is really profitable to set up an own miner for many people. And since the block size limit is relatively low, the bitcoin network is still scalable, i.e. HW expenses for setting up a miner are low, so many people will decide to setup miners -->
we get the desired DEcentralization effect in terms of Miners=bitcoin network nodes.
In the other case (no block size limit), we have the opposite effect: Short-term, USERS will continue to be able to use the blockchain at low tx fees due to low competition between transactions. So miners will have lower revenues, which will mean that many miners are going to switch off. As time proceeds, the blockchain increases quickly, meaning higher and higher memory requirements for miners. This will be another negative cost factor for miners that will cause even more miners to switch off. -->
we get the UNdesired centralization effect in terms of Miners.
To summarize:
(*) Limited Block Size promotes...
- ...Decentralization of MINERS (due to higher TX fees and lower blockchain size, making mining more profitable), but
- ...Centralization of USERS (due to higher TX fees, more users or services get incentive to go "off-blockchain")
(*) Unlimited Block Size promotes...
- ...Centralization of MINERS (due to exploding blockchain size=higher mining hardware costs and less profitable mining due to lower TX fees), but
- ...Decentralization of USERS (due to lower TX fees more users will continue using the blockchain directly)
So one has to make the best compromise. Clearly, if block size is too low (e.g. only ONE transaction per block, to make an extreme example), the network will become useless, people will loose interest, nobody will use it, and bitcoin dies. So in that sense we should be worried about Centralization of USERS.
But the current block size limit or 1 MB corresponds to ca. 1000 transactions per block (maybe 2000...), which is far from this point, as the current network already proves. So Centralization of Users is not to worry about.
Rather we should be worried about the Centralization of MINERS, which appears to be the main threat to the bitcoin network right now.
As long as tx fees are so low that services like SatoshiDice still operate over the blockchain, there is certainly no need to increase the block size limit. Once we approach the block size limit and SatoshiDice is "squeezed out", and we hit the blocksize limit again, people will first start to become more cautious about their transactions! I know it from myself, I used to make lots of "fun" and "test" transactions in the past, because they were so cheap. If Tx costs rise from let's say 0.5 cent to 10 or 20 cent, I will certainly reduce my unnecessary transactions substantially (which make up certainly more than 90% of my transactions today) without really feeling that the bitcoin network has become less valuable for me in essence. Other users will do the same. So there will be a natural evolution towards use of transactions only where really needed, and this is good. There is absolutely nothing wrong with the vision that in a very far future (assuming that bitcoin is really becoming the dominating currency in the world one day - which is far from certain) the vast majority of payments (like shopping etc.) are done off-blockchain via service providers. However, if we destroy the network before due to miner scalability and decentralization problems, bitcoin will certainly never reach that point.
(update: PS: 20 USD tx fee/transaction means ca. 30000 USD tx fee per block, or ca. 4 Million USD tx fee per day, or 1.5 Billion USD per year. Just to get an idea. Current block reward (currently dominating the fees) is ca. 3000 USD/block.)