That doesn't make sense to me. The formula wouldn't need to be arbitrary; it could be based on actual data.
But the formula remains arbitrary. You can't come up with an algorithm capable of measuring actual demand and actual supply, since these units are impossible to measure. ...
No, but you can have an algorithm that measures actual data, which is how the difficulty target works. You can measure what happened in the past.
If your sentiment were true the difficulty target wouldn't work.
The difficulty target aims to make one block at every 10min. But why 10min? This is an arbitrary value. It may be too much sometimes, too little at other times. It's certainly not optimal. That said, it's not such a big deal, and trying to improve it would not be worth the risks.
No, the difficulty target being set at 10 minutes is not arbitrary. It may or may not be optimal, but it's not arbitrary. If that value could be set arbitrarily then it could be two weeks, or two years, which of course is not workable for the application.
Speaking of all this it occurs to me we could have a dynamic cap provide both a limit and non-limit for block size. That may be a workable way to satisfy both camps.
I once had a friend download a movie using BitTorrent
and noticed the download speed varied from an absolute trickle to a full flood of throughput. Like a race car on a freeway speeds alternated between open and constricted. I'm pretty sure that's done so "leechers" don't drain "seeder" resources too much as would naturally happen if transfer channels were left unchecked.Bitcoin could work the same way. Form a mental picture of the block size beating slow like a heart. At times the block size could be constricted, allowing small players equal chance to participate meaningfully. However, that constriction could also be released to allow unlimited throughput.
In the real world that would translate to inconvenience only if and when you needed a transaction with Bitcoin's desirable features (anonymity, irreversibility, etc.) at a time of block size constriction and weren't willing to bid a high enough fee for priority inclusion. You might instead opt for an alternate cryptocurrency or suitable off-chain transaction option. This seems a small price to pay if it makes Bitcoin workable at a global scale.