Similar. In that case though the size is set purely by the miner who mines the block, so it could still lead to bloat that would potentially cripple the bandwidth of a node operator. I mean, basically it would create an incentive for mining pools to accept more and more transactions, but at some point there would be a bottleneck that could cause network problems. To me that seems more like not having a ceiling value at all, whereas I am of the opinion that we need a ceiling, just one that scales with network capability.

That being said, the system of requiring pools to give up a piece of the reward to do so is an interesting solution. I wonder how well that would work in practice though. For it to be worth giving up X% of a block reward , the transaction fees would have to more than offset that. With heavy congestion it would certainly help motivate a miner to alleviate that, but wouldn't it also create the risk of failing to complete the block all together? I mean, as I understand, there is never really any progress to completing the block. It's more or less a lottery where more hashing rate just means more tries per second, but accepting a higher difficulty to process more transactions effectively means the odds of "guessing" correct goes down. Operating the entire pool without such a risk might very well decrease the number of transactions they can confirm because it increases the chance someone else will beat them to it.

Another problem, as your reference points out, is that it would introduce an investment attack. Giving a large pool of miners the ability to artificially inflate the difficulty rating long term would allow other miners to be pushed out completely - namely those using less efficient hardware, or living in areas with a higher electric cost. It would fundamentally alter the minimum price of production as well.

For example, I calculated that if the price of Bitcoin fell to $3k USD with the current difficulty level people paying 10 cents per kwh would only earn around $100 a month per Antminer S9, 20 cents per kwh would just break even, 30 cents per kwh would mean total loss. For those running Avalon Miners, which have more electric cost for the hash rate, such a price would mean no profit at all. That's why I place the minimum price of Bitcoin around that price - because that's when the network starts to break down without miners going offline.

As it stands already, there is not enough competition in the ASIC miner scene, but there is some competition. Wouldn't it therefore benefit a company like Bitmain to use their miners to inflate the network difficulty long term to make their competition not profitable at all? To drive them out of business? Similarly, wouldn't it benefit a country that wants to destroy Bitcoin to buy up (or seize) a large number of miners to create their own pool, then inflate the difficulty in such a way that they neither make or lose money on the operation, so that no one else can make or lose money, thus forcing all miners out, and then they simply flip a switch to shut down the entire remaining network?

Seems like giving miners that much power is power too much.