Disadvantages:
1. Need to change Bitcoin protocol to explicitly disallow transaction low fees. Currently minimum fees is only set with parameter minrelayfee, but miner could include transaction with 0 fees on mined block.
My suggestion was to introduce a minimum fee in the Bitcoin system. And it is better to introduce such changes at the protocol level. You claim that the disadvantage is that "Need to change Bitcoin protocol to explicitly disallow transaction low fees". 1. Need to change Bitcoin protocol to explicitly disallow transaction low fees. Currently minimum fees is only set with parameter minrelayfee, but miner could include transaction with 0 fees on mined block.
Although this is not entirely true. The minimum fee can be entered at the level of miners, without changing the protocol. If, for example, 95% of miners vote for this and activate this mode, then blocks with transactions with a fee less than the established one will be considered invalid by the rest of the miners. But I emphasize that it is better to introduce such changes at the protocol level.
Quote
I just came up with a simple formula to calculate the minimum fee; we have three variables (x, y and z) and one constant a where x is the minimum fee, y is the amount of transactions in the last block that was added to the block chain, z is the mining difficulty and a is the average low in the transaction fee market. The equation is: x = a * y / z.
To calculate the constant a we would pick the transactions that paid the lowest fees in the last 2,016 blocks (in every single block). The value of a would be the average of all those transactions and it would be a one time calculation (this should prevent any radical change in the short term demand for block space).
Why the minimum fee should be proportional to the current volume of transactions and why should it be inversely proportional to the mining difficulty?
The minimum fee would be proprtional to the level of congestion on the network which is fair.
We can expect the network's hashrate and the network's storage capacity to increase at the same speed approximately (correct me if I'm wrong) so the long term increase in the mining difficulty would result in a long term decrease in the minimum fee which should allow more transactions to be processed on chain.
This is a totally self regulated growth system. I know the formula may not be optimal but that could be a starting point...