I propose the following rule to determine the block size limit, once the block reward is lowThe block size limit would increase (or decrease), by X%, if total transaction fees in the last N blocks is Y Bitcoin or more (or less). For example:
If the average aggregate transaction fees in the last 100,000 blocks is 1 Bitcoin per block, or more, then there could be a 20% increase in the block size limit.
Advantages of this methodology include:
- This algorithm would be relatively simple
- The limit is determined algorithmically from historic blockchain data and therefore there will be a high level of agreement over the block size limit
- The system ensures sufficient fees are paid to secure the network in a direct way
- It would be difficult and expensive to manipulate this data, especially if mining is competitive and decentralized
- The limit would relate well to demand for Bitcoin usage and real demand based on transaction fees, not just volume
I don't know the precise details of your proposal and currently don't see how you intend to guard against large miners simply creating millions of transactions to trick the dynamic algorithm into thinking that very large blocks are needed.
It could be in miners interests to keep the block size limit small, to make the resource they are selling more scarce and improve profitability. The assumption that miners would try to manipulate the block size limit upwards is not necessary true, it depends on the bandwidth issue versus the need for artificial scarcity issue dynamics at the time. If Moores law holds then eventually the artificial scarcity argument will become overwhelmingly more relevant than the bandwidth issues and miners may want smaller blocks. Miners could manipulate it both ways depending on the dynamics at the time.
I am aware miners could also manipulate fees by including transactions with large fees and not broadcasting these to the network. However why would miners in this scenario want to manipulate the limit upwards?