This brings us back to the Cryptonote adaptive blocksize limit combined with a tail emission found in Monero where:
1) The cost of mining a block is set by the block subsidy
Correct, meaning the amount of hashrate miners spend will be equal to the block subsidy[1] (where block subsidy will ultimately be Monero's perpetual tail reward which is
necessarily a fixed # of coins), because (as I pointed out in
our prior discussion) transaction fees will trend to costs, due to that the median block size M
N will trend upwards to match market demand and thus there is no pricing power on transaction fees.
[1] Note this means the tail reward security of Monero will be very weak and insufficient.
2) The total amount in fees per block has to rise to a number comparable to, but most of the time smaller, than the block subsidy.
You wrote that before in our prior discussion:
The reason the above two scenarios do not apply to a Cryptonote coin with a tail emission such a Monero becomes apparent when one considers the economics of the total block reward components of fees and base reward (new coin emission). If the total in fees per block significantly exceed the base reward then it becomes economically attractive for miners to burn coins to the penalty by mining larger blocks. The block size rises until the total fees per block fall below a level where it is uneconomic for the miners to pay the penalty by increasing the blocksize. This level is comparable to the base reward. It is at this point where the need for a tail emission becomes clear, since without the tail emission the total block reward (fee plus base reward) would go to zero.
And it still doesn't make any sense to me. The block size will trend upwards to match transaction demand, because the penalty is driven to 0 as the median block size increases as miners can justify burning some of the transaction fees to the penalty. That drives the median block size upwards, which drives the penalty to 0 again. The median block size doesn't have any incentive to decrease again, thus transaction fees then fall to costs.
Sorry as I told you before, Monero does not solve the Tragedy of the Commons in Satoshi's design. It does adaptively increase the block size while preventing spam surges.
I doubt John Conner's design has achieved any better, because as I explained at our prior discussion, there is no decentralized solution to that Tragedy of the Commons in the current proof-of-work designs. I have a solution, but it is a very radical change to the proof-of-work design that relies on unprofitable mining by payers.
Clarification:
Security of a coin will be very tied to its transaction rate × average transaction size, i.e. velocity adoption and wealth of the velocity. The problem I have with the fixed size tail reward as compared to the design I am contemplating is that tail reward only captures those metrics indirectly through exchange price appreciation. I am not sure if the two models are equally powerful. I will need to think more deeply about it. My design also has an orthogonal tail reward.
Edit: some aspects of Monero's tail reward and block size adjustment algorithm are analogous to aspects of my design. There are some other things I didn't mention. I will need to really take the time to distil this into a carefully written white paper. So I would caution readers not to form any concrete conclusions (either for or against any design mentioned here) from these vague discussions.
BTW, I would suggest that Tragedy of the Commons is an ineffective analogy for explaining whatever it is you are trying to explain because obviously-intelligent people such as ArticMine don't understand it. It may be that you are entirely correct, but if you want to communicate effectively you need a differently-worded explanation.
Agreed at the appropriate time. I deem it necessary to be vague since I am months (or moar!) away from implementing my design.
The fundamental issue here is that transaction fees should not be seen as a way to secure a Cryptonote coin such as Monero. The security of the coin is based on the base reward. Now that does not mean tha transaction fees will tend to zero and stay there. In fact one would expect the total transaction fees per block to reach for the most part an equilibrium at some fraction of the block reward. To understand this we must understand that while transaction fees are needed to overcome the penalty in order increase the blocksize, there is no rebate on penalty when the blocksize falls. This means that just normal fluctuation in transaction demand will require a significant fraction of the block reward in transaction fees. The median blocksize adjustment time is less than a day in Monero. In practice one would expect total transaction fees per block to temporarily approach or even slightly exceed the block reward if there is a sharp rise in transaction demand, and conversely it is possible for transaction fees to temporarily fall close to zero if there is a sharp drop in transaction demand. Since security is only as strong as its weakest point for this reason alone one cannot count on transaction fees to secure a Cryptonote coin. The implications for Monero is that the tail emission alone becomes the source for POW security. A further important conclusion is that a coin that uses a Cryptonote adaptive blocksize or something similar and does not have a tail emission or equivalent (for example demurrage) big enough to secure the coin will become insecure and fail.
In the case of Monero one must keep in mind that over time one would expect the tail emission will actually reach an equilibrium with lost coins for a given purchasing power of Monero. The assumption here is that lost coins are proportional to the the total emission for a given purchasing power and transaction velocity. One advantage that Monero has here is that monitoring Bytecoin could provide a significant early indication of the risk of too low a tail emission with a two year or more lead time. Paradoxically this early warning system works because of the Bytecoin two year premine / ninjamine. Also the Bitcoin inflation rate will also fall below that of Monero so it could also provide an advance indication of risk. As has been indicated above this risk is of course largely mitigated with exchange rate appreciation, which would normally correlate very strongly with the use of the currency.