I'm very interesting to see how would a fee market become if the block size is full at 1MB. It seems many people are afraid of seeing that happen, but what if it makes bitcoin more valuable?
Imagine that the mining fee per block becomes higher than 50 BTC, e.g. 0.0125btc per transaction for 4000 transactions per block at 1MB, and average transaction will be larger than 1 BTC to not feel the pain of fee. That is about 6 dollar per transaction at today's exchange rate, almost at the same level as today's international bank transfer fee, but still lower. So it won't impact two largest user group of bitcoin: Long term value store and international remittance
However, the result of 50 BTC fee per block is: In a 4 years' period, half of the coins will be collected by miners. Currently many people do not trust bitcoin because they doubt that it is a pump and dump scheme: Early adopters sitting on millions of coins, making lots of campaigns to merchants and users in an effort to dump them to late adopters and profit. However, if late adopters can become a miner and process transactions for early adopters and collect equal amount of coins like early adopters, then this monetary system is much better designed and will not result in inequality long term wise. Because mining is almost free entry for anyone, this will attract more users, more than a low fee will do
In fact, this is already a concern when the next reward halving is coming, means over 75% of the coins have been mined. What would people do when a gold mine is depleted?
The argument for a large block is to reduce the fee for average users, but what if a small block is better for bitcoin's adoption?
I cant understand how coin with high fees can have better adoption (number of people using it), when there will be cheaper altcoin alternative (fees)... Can such coin just be used for international remitance players instead ? Well why not look for a cheaper alternative instead again ? Ok, and what about store of value, at least. Why would you store your value on a coin when the coin can hardly to be used for anything ?
As I see it, if you cap how much coin can be used (number of transactions), people just use other coins for the same purpose, and just stop caring about Bitcoin or even consider storing value there, just like you do today with random altcoin or coin you have no use for.
Alt coins with less security and reliability and staying power, alt coins with less recognized value (the network effect) and thus fewer places to spend said coins.
People may choose to use other alt coins as the Bitcoin transaction fee grows but Bitcoin with its place as the first and the most reliable, dependable digital currency will be the flag ship of a whole fleet of new alt coins. If an alt coin shows it can be more stable and reliable with lower fees then those changes will be incorporated into Bitcoin but not before. Bitcoin is Borg it will take the best aspects of the lesser alt coins and incorporate them into itself.
Bitcoin or any other Crypto currency has yet to do battle with a government body, we need to keep our eye on the real threat, government intervention. A war is coming and if the bitcoin network should fall all crypto currency's will suffer as a result. We could be set back decades.