This is a reply to
https://bitcointalk.org/index.php?topic=189792 (Bitcoin Blocksize Problem Video).
This the first time I've heard the case being made NOT to increase the block size to solve the '7 tps problem'.
It's unclear from the script why increasing the block size will somehow shut out all the small mining operations. Doesn't the difficulty adjust to maintain the block creation rate?
Why would bigger blocks be a problem?
Bigger blocks increase the resource requirements for running a miner and/or pool, as well as the resource requirements for running a full node like Bitcoin-Qt (or bitcoind).
At the moment with a maximum blocksize of 1 megabyte, the blockchain will grow at a maximum rate of 52.56 gigabytes per year. If the maximum blocksize is increased to 10 megabytes, the blockchain could grow at a maximum rate of over a half terrabyte per year. This would require additional storage expense to maintain the blockchain. With 100 megabyte maximum blocksize, the blockchain could potentially grow at a rate of 5 terrabytes per year.
Downloading the most recently solved block takes time. A miner (or pool) can't start mining the next block until they've finished validating the most recently solved block. Significantly increasing the maximum blocksize will significantly increase the amount of time it takes to acquire the most recently solved block, especially for those with lower bandwidth internet connections. This means that those with faster internet connections get a significant headstart on mining the next block, increasing their chances of solving that block before the miner with the slower connection.
Therefore the profitability equation becomes less about the miner's share of network hashing and the cost of that hashing power, and more about the miners disk space and internet bandwidth and the cost of those resources. A miner who has enough hashing power to generate $1000 per month in profits will find it far less difficult to pay for the increase disk and internet costs than a miner who only has enough hashing power to generate $5 per month in profits. The smaller mining operation will find it unprofitable to have to pay for the increased disk and internet costs and will shut down their operation.
Far less individuals will be willing to run a full node client such as Bitcoin-Qt as the amount of disk space it is using up gets significantly larger, and it begins to affect their internet use.
