Quote from: gmaxwell on March 05, 2015, 05:27:31 PM

Quote from: jonny1000 on March 04, 2015, 05:24:38 PM

e.g. 1MB block 0% haircut, 10MB block 10% haircut, 1000MB block 95% haircut. Some polynomial could determine the formulae.

Diminishing fees doesn't work in the long run, as fees can be paid out of band. An alternative that has been proposed is adjusting the difficulty, though this only allows small adjustments.

This is a good point. Adjusting the difficulty is a better solution, however this seems to undermine Bitcoins core longest chain rule security mechanism, which is too much for a peripheral mining incentives issue.

Quote from: Gavin Andresen on March 05, 2015, 09:18:27 PM

Miner profit in fiat currency = number of transactions * average transaction fee * btc-to-fiat exchange rate

Should this not be:
Miner revenue in fiat currency = number of transactions * average transaction fee * btc-to-fiat exchange rate?

You may be right that more transactions will increase the BTC to fiat exchange rates and that two of the variables in that equation increase, however if the fee falls then overall mining revenue can fall. This is possible and merely depends of the elasticity of demand.

In economic theory, there is the well known monopoly idea where supply is constrained to increase profits. This is not ideal, but it may be possible.

Source: http://en.wikipedia.org/wiki/Monopoly_profit

Quote from: Gavin Andresen on March 05, 2015, 09:18:27 PM

If you think that putting an artificial cap on the number of transactions will increase overall miner profit, then I urge you to find a Real Economist and talk to them about the wisdom of trying to use production quotas to keep prices artificially high.

You are correct that artificially implementing production quotas to increase prices is normally a bad idea in almost all markets. In the market for Bitcoin transaction fees, which has many unique characteristics in my view, implementing this is not perfect either and is likely to cause problems. However there is no perfect solution and I think an arbitrary quota is something worth seriously considering. Please dont misrepresent what I am saying as being in favour of a 1 MB limit, as I am not.

If the marginal cost of adding additional transactions to blocks is effectively zero, then thats a pretty unique situation. If the market is competitive then price = marginal costs, which means miners profit will tend to zero. It is not impossible that imposing this quota will increase miners profit from zero. In my view a differential marginal cost of adding transactions to blocks for different miners, is desirable, that way one can have a cost curve dynamic which makes the market more robust. If the marginal cost of adding transactions to blocks is uniform across all miners, I think we may run into some problems.