I'm guessing you think that Bitcoins could become the next defacto international reserve or common trade currency.  I think that the quantum leap in transaction costs versus current systems is so dramatic that most fiat currencies might not even have a reason to exist. In which case, the US FRN, the Euro, the Pound, etc don't collapse so much as fade away.

Children have died because of taking vaccines, which is why not all of them are given to children in developed nations anymore.  Polio is a great example, the illness is deadly, if you get it.  But the vaccine is potentially deadly, again if you get it.  The idea of vaccinating everyone is to wipe out an illness from the face of the Earth so that no more children have to risk death or injury from the vaccine, but most illnesses cannot be wiped out so simply.  My father was messed up by the polio vaccine, and he was an adult at the time.  But back then, nobody really told the parents the real risks of giving their children the vaccines.  Now this is more widely known, and some parents refuse to give their children risky, or any, vaccines.  My own children have only had about half of the "reccommended" set for school children, because they are homeschooled and I can do as I want.  My wife and I choose between them based on the risks of real harm if infected times the odds of actual infection in the modern world and weigh that against the odds of a particular vaccine causing harm.  We live in the US, which means that our children benefit from the 'herd immunity' effect from being in a city wherein most of the other children are vaccinated, and therefore there is no infection vector that could likely reach them anyway.  The public school kids bear the risks, while my kids benefit.  It's not fair, but that's life.

Everyone considers themselves to be the rational moderate.

How does this do anything but grow?

I was thinking about all this on my commute to work, and I have a proposal.

1,000,000 + (Difficulty * Byte * K) = max block size

Wherein K= some factor high enough that the max block size is never really an issue, say K=2.  But some analysis is due on that.

But here is another change to the default fee schedule, granted that individual miners are likely to have tighter requirements themselves than this...

First, the max block size calculated above becomes the basis metric for a set of soft max block sizes.  I suggest 16 tiers of equal size.

0 to one-sixteenth of max block size, no special requirements, miners can include whatever valid transactions they desire up until this point.

1 to 2 (sixteenth) at least one transaction paying a fee equal or greater than the minimum fee required for unusual transactions must be present.  That transaction can be one wherein the fee was required or not.  As long as at least one is present, miners can include whatever else they desire up until this limit.

2 to 3  At least one transaction paying a fee double the fee for the above class.

3 to 4  At least one transaction paying at least double the rule above this one must be present.

And so on, so the fee paid by the highest fee paying transaction sets the bar for the block, and then the miner can include whatever other transactions that it sees fit.  This not only encourages the use of -sendtomany whenever possible, which is more efficent for the network anyway; most of the fee paying transactions (and free transactions) are then competing for the fill in space left by the one transaction that is paying for the bandwidth.  And this also sets a method of ongoing price discovery, as any client can look at the last block and it's own transaction queue and predict how much it will have to pay in order to get into the next block (probably equal to or higher than the highest single fee in the last block, if the queue is steady, slightly more if it is growing, slightly less if it is dropping) as well as establish a bidding mechanism for the 'median' transaction to be included in a block in the near future; as all other transactions besides the high transaction are then bidding for the remaing space by looking at their own queue of transactions, guessing which will be the high (and therefore the sixe of space available) and looking at the second highest to outbid if it wishes to be included in the next block.

In this way, the well-heeled senders set the bar.  Imagine if Wal-Mart, which has half a million employees to pay each week, were to compile that entire paylist into a single -sendtomany transaction.  They would be able to definitively determine the minimum fee they would have to offer just to be considered, based solely on the actual size of the transaction, and then be able to guess how much more they should offer based upon how many large senders there were in the previous several blocks.  Say in this transaction had a million outputs (probably 10 million inputs) and was 3.2 Mb once done.  The difficulty was 2 million at the last adjustment, so wlmart knows that the max block size is 5Mb.  In order to fit their 3.2 Mb single transaction into the block, they have to offer a fee at least 16 times the minimum fee (5/8=.625, 3.2/.625=5.12, so 6th tier, first tier is free, second is equal to the minumum fee, so 6th tier is 4 doublings of the minumum fee).  If the minimum is .01, then Wal-Mart pays at least .16 just to qualify.

EDIT: somewhre I switched my numbers in my head from 16 teirs to only eight.  So my numbers are wrong, but hopefully I conveyed the idea.

I agree with this perspective.  This simple rule maintains scarcity, prevents scalability issues, and is likely to find it's own equilibrium via transaction price discovery.

That's awesome.  And I agree it's sledgehammer simple.  I like that rule better than mine.  The free section, and the tiered fee schedule, would have to become percentages of that number; also sledgehammer simple.  No fudge factors.  Elegant.

EDIT:  Rule (b) might have to be some agreed upon multiple of difficulty, however.  If the blocksize does not naturally increase until difficulty is over one million, I'm afraid that we really would have some scalability issues.  Can anyone think of a metric that can be used for that multiple, or must it be fixed?

EDIT #2:  And Rule (a) should be reduced by half at least.

The article is largely about how the Euro was intended to unite Europe economicly and politically, and is failing economicly in part because currencies are not political.

Because sometimes they will have to.  There is a set of rules that limit how large the block can be based upon the largest single fee.  Currently this "fee schedule" is so harsh that hitting the 'hard' blocksize limit of (currently) one megabyte is functionally impossible.  Off the top of my head, a block more than a third of megabyte would almost certainly have more bitcoin in fees than the block reward.  If the minimum fee, the max block size, or the fee schedule were to change in the near future (which I think is likely) then that is also likely to change.

I have already laid out my plan for a self adjusting limit, based on the average number of blocks a fee paying transaction spends in the average queue, but with some fudge factor to allow for different miners having slightly different averages across the network.  To account for fee rates, the average could be weighted by the amount of the fee in such a manner that a fee larger than the minimum gets affects the average more than the average transaction fee.

The space available for free transactions could be set static, or as a percentage of the moving blocksize.  The blocksize could be adjusted when the difficulty is adjusted, and the winning block first after the change encodes the calculated max limit into that block in some fashion.  If the network accepts that block, then that max limit becomes a fixed limit for another 2015 blocks.

Is that right?  Well, based on your deep understanding of this subject, what color am I?

I suppose that you could start a charity that subsidizes the cost of ATI video cards for minorities.

Nothing beyond it's own economic characteristics; which are certainly colorblind.

No, not at the same time.  Just before hitting that limit were to become a regular event.  We could change that rule in the next vanilla client release, so long as everyone agreed that we should, and voiced consent by downloading the new client.  At the current rate we still have months, if not years, before hitting that limit regularly.  As far as I know, we have never come close to it.

If we wait until every other block is hitting that limit; however, implementing such a rule change is going to be problematic.

Well, yes.  But the talk recently is about how maintaining the transaction fees in order to maintain the hasing power of the network, not scalability.  This particular thread was mostly about scalability, and in such a case the max block limit can be raised or removed.  It's only present as a backstop against the possibility of there being some presently unknown exploit that would permit limitless transaction spamming of the blockchain, and not as a means to support the transaction fees.  The short answer to the scalability issue is that it can be easily removed long before the network traffic is high enough that the max block size becomes an actual scalability issue.

It never really was a real problem except for future scalability.

That is how it is now.

That could be done easily.  The hard blocksize limit is only there as a backstop in case an exploit that permits limitless transaction spamming is found, not as an artificial scarcity.  The max block size limit could be increased to 10 megs or 100 megs right now an not have any noticable effect.

Others are wrong.   
No, this is where this error keeps coming up.  It's a commons, but not a 'tragedy of the commons'.  The collective security of the blockchain is the commons, but the incentives for senders to add a fee are different from the commons resource incentive.  The fees are competing for a time limited resource, inclusion in the next available block; while miners are competing for those fees.  Those are not commons.

I have made such a case, it's the 'Wal-Mart' post.

Why does this keep coming up?

No, not all miners have the same incentives, and not all will be motivated solely by direct profit (i.e. mining fees).  Some will have an indirect motive to mine, making transaction fees a secondary revenue stream.  You can search for my "Wal-Mart" posts related to this subject.

Assuming that the trade value of a bitcoin is more or less the same on one side of the halving of the block reward as on the other, and also assuming that there is zero revenue from transaction fees in order to take the worst case scenario; the drop in the block reward from 50 bitcoin to 25 bitcoin is mathmaticly the same as a sudden doubling of the difficulty from the perspective of a miner.  This is something that they are all going to know is coming from far in advance, and almost all of them will have a pretty good idea whether or not mining will still be profitable.  So those that would no longer be profitable might stop, and logicly that cannot be more than half of the miners in total just before the cut.  Those that remain would be profitable again by at least the next difficulty retarget.