Thanks for David Jerry bringing this up (
https://twitter.com/digitsu/status/809152914023251968 ). Here is my reply
1MB-block supporters have 2 major arguments: decentralization and block space scarcity. By considering ONLY these 2 factors, however, the BEST solution is to limit a block to only 2 transactions: a reward transaction and a normal transaction. This will limit the block size to absolute minimal, and make sure everyone could mine with a 9.6k modem and a 80386 computer
Yes, if we consider ONLY these 2 factors, this is the best solution. But the very obvious fact is these are not the only factors
The truth is that the 1MB limit was just an arbitrary choice by Satoshi without any considering its implications carefully (at least not well documented). He chose "1" simply because it's the first natural number. Had he chosen 2MB instead of 1MB, I am pretty sure that Bitcoin would have worked in exactly the same way as how it works now. Had he chosen 0.5MB, we might have already run into a big trouble.
Yes, I still think 1MB is an arbitrary limit. If Satoshi used 2MB, Bitcoin should have worked in exactly the same way as it was in 2014 (when I wrote the original message). However, if we had 2MB today, without all the optimization brought by Bitcoin Core in the past 2 years (libsecp256k1, compact block, pruning, etc), many full nodes would have been broken.
Had he chosen 0.5MB, it might be easier for people to reach consensus to increase it. However, I have to say the effect of hitting the limit is not as bad as I thought. One indication is the robust price uptrend in this year. OTOH, most tx confirmation problems are related to wallet design.
We want to maximize miner profit because that will translate to security. However, a block size limit does not directly translate to maximized miner profit. Consider the most extreme "2 transactions block limit", that will crush the value of Bitcoin to zero and no one will mine for it. We need to find a reasonable balance but 1MB is definitely not a good one. Assume that we aim at paying $1 million/block ($52 billion/year) to secure the network (I consider this as a small amount if Bitcoin ever grows to a trillion market cap). The current 7tps llimit will require a fee of $238/tx, which is way too expensive even for a global settlement network among banks.
Note that when I say "1MB is definitely not a good one", the context is bitcoin would become a global settlement network with a trillion market cap. I think my estimation is still correct, but this is a long term vision.
To answer the question of "what to replace the 1 MB block size limit with", we first need to set a realistic goal for Bitcoin. In long term, I don't think bitcoin could/should be used for buying a cup of coffee. To be competitive with VISA, the wiki quotes 2000tps, or 1200000tx/block, or 586MB/block (assuming 512bytes/tx). To be competitive with SWIFT, which has about 20 million translations per day, it takes 232tps, or 138889tx/block, or 68MB/block. Divide them by the $1 million fee/block, that would be $0.83/tx and $7.2/tx respectively. A fix rate of $7.2/tx is a bit high but still (very) competitive with wire transfer. $0.83/tx is very competitive for transactions over $100 of value. I think a reasonable choice, with the implications for centralization considered, would be around 100MB/block. That takes 1.5Mb/s of bandwidth in a perfect scenario. That would be a better equilibrium in technical and economical terms.
This 100MB estimation does not take payment channel like LN into considerations. It also doesn't take better cryptography like Schnoor signature aggregation (saving lots of block space) into considerations. Schnoor signature alone could easily cut my estimated size by more than half (and it is totally on-chain). With more optimizations (weak block, UTXO set growth limit, fraud proof, partial block validation by SPV wallet), I don't think 50MB blocks is an insane idea. It just can't happen today.
Finally, as a not-so-related note, one may also note that I'm always a fan of softforks since I joined this forum, for examples:
https://bitcointalk.org/index.php?topic=283746.0https://bitcointalk.org/index.php?topic=256516.10https://bitcointalk.org/index.php?topic=253385.0https://bitcointalk.org/index.php?topic=1103281.0