Back clearly does not understand economics. Mining gets more centralized because of economies of scale. this is unavoidable unless you intentionally want to keep mining and our whole project as a hobby. Look at gold mining. At the beginning of the California Gold Rush, anybody with a shovel and a pan could make a buck. After the low hanging fruit all got picked,you had to invest more and more capital and have more knowledge and specialized knowledge.

Back's basically saying that he doesn't want to scale up at all, but if we are to scale up it should be as little as possible. He offers valid concerns, but in practice, that means that "reasonable" block size increase means no increase.  

Mining centralization is unfortunate and unavoidable but there is also limits to centralization in an open network. The barriers to entry are hardware efficiency, cost of hardware, cost of electricity, technical skill and other things like bandwidth.

Every single barrier can be overcome if the price of bitcoin gets enough. The same thing happened a few years ago when gold prices jumped so high that placer mining became profitable again. Smart rich people from lower margin industries come in and compete--But that WON'T happen if most bitcoin transactions go off blockchain because of economics.

Off blockchain transactions increase the velocity of money which has the same effect of increasing supply. You're not trading with bitcoin. You're trading with bitcoin IOUs.

MV=PQ   money supply times velocity equals price of goods time quantity of goods. How long before Coinbase starts operating as a fractional reserve or gets out-competed by someone else who does?

Supply and demand. Effectively increasing bitcoin supply drives the price down.  

Scale or die.