Quote from: zatoichi on December 29, 2013, 06:28:39 PM

A market determined fee? A market implies competition which implies advertisement of competing products or prices. How is the selection done? If it's an auction for the lowest fee then the problem of monopolization remains.

It's a public auction for the highest fee.

Everyone voluntarily chooses what fee they want to pay for their transaction.

There is a financial incentive for miners to choose the transactions that offer the highest fees per byte (since they get to keep that fee).

There is a temporal incentive for transaction creators to offer a competitive fee per byte (since having their transaction chosen by a miner means faster confirmation).

There is a financial incentive for miners to fill all the bytes of a block if there are enough fee paying transactions available to do so (since each transaction increases their revenue).

All the transactions that are included in a block are publicly listed on every copy of the blockchain. This allows everyone to see how many transactions were included in the block and what the total transaction fees were.

Simple division allows the user to determine what the average fee per byte was in the most recent blocks.

A reasonable assumption is that a fee higher than this average will increase the likelihood of your transaction being included in the next block, and that a fee less than this average will increase the likelihood that you will have to wait many blocks before your transaction will be confirmed.

The maximum blocksize is the competing "product" that is advertised and well established. The transaction fees are the "prices" that are publicly visible and offered by the competitors desiring space in the next block.