I've been thinking about the future direction for fees a lot and had the following idea: What if the amount of fees somehow affected, on a block-by-block basis, the difficulty for that block? This idea would require a hard fork but the more I think about it the more it appeals to me. I call it "weighted per-block difficulty."
The basic gist of it is:
1/ there will still be a "base" difficulty rate which would adjust approximately bi-weekly;
2/ the amount of fees included in a block, divided by the total input value for that block, would affect this "base" difficulty in a zero or positive way. Say the base difficulty is 1000 and the fees for the block comprise 10% of the total input value -- this would raise the difficulty to 1010. Of course the percentage would have to be thought out more than this.
A few ways this would affect miners' and users' that I've come up with:
1/ transactions which (probably, mistakenly) include huge fees will be shunned by miners as they will negatively affect their ability to solve a block;
2/ At present there is a perverse incentive for miners to include large fee transactions in a block over small fee incentives; they currently include small fee transactions out of the goodness of their heart because the block reward far outweighs any transaction fees they earn. This perverse incentive in the future will tend to, with a non-weighted difficulty rate, make miners include large fee transactions over small fee transactions — the fee pricing structure therefore, at present, is a POSITIVE FEEDBACK LOOP — when transaction fees are the lion’s share of the block reward the incentive will be to include higher and higher fees on transactions, ignoring lower-fee transactions. Needless to say this is a Bad Thing(tm).
3/ if the difficulty per block is reliant on the fees for that block the incentive then becomes to include the transactions with the lowest fees economically possible — however transactions with fees below a miner’s economic threshold will take longer to confirm, if they confirm at all;
4/ because the formula for adjusting difficulty would be based on the percentage of fees as they relate to the block’s total transaction inputs the idea is bitcoin-value agnostic -- always larger transactions with lower fees affect the difficulty less than small transactions with higher fees -- however fees would be stable as a percentage of the input(s);
5/ fees would be easily calculated by Bitcoin users by analyzing one or a few previous blocks; minimum, maximum, average and standard deviation of fees could be easily calculated;
6/ blocks could be just as easily confirmed by the reference implementation as the formula used by miners to adjust the base difficulty would be deterministic, based on the base difficulty, transaction input totals and fees included;
I'd love to hear your thoughts...
