3. Lastly, if there are lots of transactions occurring on the network, then there will be a corresponding increase in the number of new TXs that pay decent fees that miners will want to immediately include in the blocks they're working on (i.e., they won't bother waiting for pre-consensus on some of those new TXs). If rational miners make the decision to immediately include those TXs (and they would because it would earn them more money than by never included brand new transactions) then the block solution announcements will contain an amount of information that also depends roughly linearly on the transactional throughput of the network (i.e., on the avg block size)!
I admire the approach in the paper and if anything it points us towards asking right
questions. And my every cell cries out that artificial scarcity by central planning is just
plain wrong!
But at present the part quoted above seems to me the only way that the fee market as
outlined in your paper would work.
Because advances in block propagation would push the supply curve slope arbitrarily close
to information-theoretical limits, so that finally all the info transmitted on
block discovery would be the bits necessary to eliminate double spends.
AFAICS The effect on fees would be negligible at this point.
However, besides large throughput other conditions would have to be present
in order to guarantee variation in the tx composition within mined blocks however.
I imagine that it would require
a wide distribution of mining nodes that were
dependent mostly on non-mining full nodes for receiving transactions.
That way the transactions would arrive to individual miners from "different directions"
and if the throughput was voluminous enough, there would be always txs that the other miners
had not heard about yet.
That situation is the polar opposite of miner cartellization, and for it to happen
the full nodes would have to be empowered and prove themselves indispensable
to miners. Full nodes forming a relay network would be a good start, but even more
importantly the full nodes should be the points where transactions actually happen. This means
many many Bitcoin businesses and points of sale that all operate a full node.
To sum it up
- Naturally occurring fee market needs
- a large throughput, which needs
- more decentralization by empowering full nodes, which tantamounts to
a cambric explosion of Bitcoin economy