Quote from: da2ce7 on November 26, 2010, 11:55:00 PM

Quote from: MrFlibble on November 26, 2010, 12:45:00 AM

I suspect the generator rules can vary with time, but to fend off chaos they should be a deterministic function of the content of previous block(s) and not depend on the transaction pool. I also suspect that if the customers & merchants do not hold a significant fraction of the Ghash/sec, the 'rules' will tend to make a generator cartel with high fees.

Yes I believe the real potential issue is the 'cartel,' I'm not worried about the transaction fees being too low, rather too high. I think that studying this with game theory would be very fun, but, I don't have the time also.

There can be no 'cartel' in Bitcoin, because there can be no monopoly. The barriers to entry into the generation pool are simply too low, and there is no way that a government could enforce an artifical monopoly even if it wanted to. If the transaction fees begin to creep up due to consolidation of the generation pool, others will begin to notice and they will choose to participate as the possibilites of a random reward become worth the costs. This will create a price point that is ever fluctuating, but balanced, as this effect removes any pricing power of any group of generators in collusion. I would predict that the transaction fees will be somewhere between 0% and 3% on average, but closer to 0%; because 3% is where the credit card companies and PayPal have set their prices, and they do have a degree of pricing power. If a 'cartel' were to set up a datacenter that could dominate the network, but only include transactions with fees at say 2.9% (PayPal's regular rate), they would be ignoring an entire set of fee paying transactions that only non-cartel generators could capture. The results being that the network would generally see that 2.9% is the premium price to get one's transaction recorded quickly, but if one is willing to wait until one of the non-cartel generators then there is a budget option (currently that option is free). The cartel could not be certain that they could even capture the premium fees, so they would have a choice to make. Either recognize that they don't have the kind of pricing power that they thought that they did, or ramp up their generation capabilities until they do. The second choice creates an 'arms race', as for as long as the cartel increases their capacity, they must attempt to pass on that cost, but they can only do so temporarily before non-cartel generators see a profit opprotunity to do the same. Eventually the cartel hits a point that it can no longer continue, and in the meantime the system has benefited from their attempts to corner a market that cannot be cornered.

Of course, anyone with the resources to do any of this is also going to hire people who know the system, who are likely to point out that they can't really do what it is that they want to do.