Re: How a floating blocksize limit inevitably leads towards centralization
The problem is the baseline and how much of a difficulty change equals how much of a block size limit change. The baseline could be how much difficulty is at the time of the change (for example), but the other part is tricky. Maybe it could be done as a percentage change, it would change the same percentage as difficulty?
This is what I mean when I say that an oracle would be needed to determine the formula relating difficulty to block size. There is absolutely no way to know what this formula would look like. The penalty for getting it wrong (and it would be wrong most of the time) is vanishing fees, resulting in hysteresis (wild oscillations in network hash rate). ASCIMiner's 24% of the network hash rate could become 51% after a difficulty adjustment.
What's wrong with the scheme I described, which responds directly to changes in transaction space scarcity?
If we...use soft limits and/or other block verification rules to impose scarcity on transaction processing, most of the miners & pools will abide by the soft rules even when commenting out those rules is provablely in their own economic interests. Reputation matters here, even moreso than it does in the "real" business world.
False. At least one of the pools will rewrite the soft limit to their economic advantage. Once this happens, members of other pools will quickly abandon ship and join the pool that modified the soft limit, since they have higher payouts.
You're saying that miners will choose to make less money rather than more?
I can see it now: "p2pool: smaller payouts, better reputation!"
Yeah, I don't think so.
Not a certainty; so don't depend entirely upon limits that can be commented out by miners. Use block verfication rules as well, which could be commented out by the users, but why would they do this? The propogation of the block is very much part of the system. Include the soft limit into the verification rules of as many clients as possible, and miners who first comment out that rule for themselves will be punished by the network at least until a majority of users upgrade their clients to match. The rest of the miners that didn't commetn out the rule would benefit from teh harm the first mover takes upon himself.