Thanks for that, it was my reading also.
Thus TX fees that are not in the block but paid out of band are not subject to penalty...
It's an additive deduction, not multiplicative.
You seem to be thinking the miner's reward is:
(1 - penalty) * (minted coins + tx fees + collection from pool)
Where it is really:
minted coins + tx fees + collection from pool - penalty
Having more fees in the txs included doesn't increase the penalty. There is no difference between adding 1 mBTC to the fee and paying 1 mBTC out-of-band.
I don't see how this differs from in Monero?
In Monero, addition of txs up to the median blocksize is free. As you surpass the median blocksize, a quadratic penalty is applied to the subsidy of the coinbase, but amounts obtained from tx fees are untouched. The subsidy of the coinbase is initially dependent of the number of coins in existence, and so takes into account the previous penalties to coinbases of any previously generated blocks (comparable to your "pool" method). Then, the miner is free to add transactions meeting some economic equilibrium that maximizes their overall income when taking into account the blocksize penalty to the coinbase subsidy.
So, it's like this:
(1 - penalty) * (minted coins) + tx fees
where penalty is dependent on the size of the block above the median size according to the formulas found in the CN whitepaper.
gmaxwell criticizes this as promoting out-of-band transactions, but the fact remains that to permanently and secure transfer money you must use the blockchain and have it included in a block somewhere. Thus, I never thought it was much of an issue.
That's not the part that differs from Monero.
In fact, that's the part that NewLiberty claimed was worse than Monero, and I claimed is the same. (See also
context)
Do you have a reference for Greg's criticism? It doesn't make sense to me. I've explained above why out-of-band is not a problem in my suggestion (as you said - inclusion in the blockchain is what you need to secure the tx, so you have to pay the penalty anyway, and it doesn't matter if you get payment in or out of band), and since Monero is similar in this regard, it shouldn't be a problem for Monero either.
It's possible he means that miners will make an out-of-band commitment to include a tx at a later, less crowded block. But... That's a problem with any other system (e.g. the current hard cap in Bitcoin), and it's not a problem - we
want txs to be taken out of big blocks and into smaller ones. I don't think the users will actually agree to such a contract, but if they do, it's perfectly fine.