A mining cartel wouldn't last very long. Miners inside the cartel would have the temptation to secretly mine a little on the side with a lower minimum fee in order to get some extra profits. Miners outside the cartel will also be more profitable than miners inside the cartel, because they get the same amount of money from the expensive transactions plus additional money from lower fee transactions.
Apparently I have not explained well what I mean by cartel, my scenario:
-the block bounties are effectively gone
-the block size is abolished
-almost nobody pays fees, because there is no competition for block inclusion
-mining is slightly better than break even, everyone who can't pay their bill already dropped out
-some group(pool operator,company etc) has >20% of hashes
-that group decides not only not to accept free tx for their block, they refuse to validate any block that contains free tx
-20%+ of blocks will be, by default, paid only, since they are generated by the cartel
-submitting blocks with no free transactions results in a 25%+ advantage in a validation race ( when two blocks are submitted to the network close together)
-other miners, in a low profit fee-as-donation system, don't want to take a 25%+ hit in races so they don't submit free tx, gaining an advantage, as well as creating a defacto barrier to entry for transactions.
-once they are onboard with not accepting frees, it's obvious that some, probably more than half the cash strapped market, will join the revolution and resign all pending frees to the tx pool forever.
-mining is now more profitable
-the market is broken because the miners are incentivized to continue to raise the entry barrier till they face outside(credit card) transactional cost competition.
-the market is also broken due to an ever growing pool of permanently abandoned tx that are blocked by arbitrarily imposed barriers.
A rule would be great if we had any basis for deciding one...
Which is exactly why I proposed a modulated, enforcible, protocol rules that sets the block size to be larger than the paid market.
If free riders don't like the delay they can include fees, get their tx processed, and indirectly increase the size of the paid market by paying, thereby allowing more free riders to ride, and the miners to make more money.
In my proposal everybodies interests are aligned. Each group competes amongst themselves, but the users and the producers are not at odds, and they can all make well informed decisions about the likely consequences of their movements in the market.
Quick sidenote: Note that if your rule creates fees that are too low for a long period of time, the whole merchants buying insurance, which raises prices mechanism will still kick in. So you wouldn't do very much damage, only introduce a bit of uncertainly about how/when the rule is going to be changed. It's only when you accidentally set it too high that you cause a massive amount of wasted resources including extra CO2 emissions, wasted electricity and mining hardware.
If the equation for adjustment is part of the protocol, and the recalculation is at a set interval (like everything else in the protocol), then everybody will be able to trivially predict the date, and outcome the the recalculation.
Nobody would be able to impose any rules on the system. The only person who wants to impose a rule is you. I'm arguing against instituting a rule.
There are two ways to get a rule applied in bitcoin:
-add it to the protocol
-game the validation system
If you refuse the first, and then create the conditions such that the second is the only way to profit as a miner, then you are setting a rule through negligence, I prefer that we consider these things proactively.
Insurance companies would have no influence on mining fees and neither would miners. The only factor influencing mining fees would be how much users (particularly merchants) are willing to pay to make sure their transactions get confirmed. If the network got under attack, they would be willing to pay more. If everything was running smoothly, they would be willing to pay less. That way, the hashing rate would auto-regulate depending on the actual real-life cost that attacks incur upon the Bitcoin economy.
If mining is unprofitable, and free transactions are unreliable, I suggest that a failure scenario is much more likely than any sort of market correction (since there would, of course, be no market, since there is no limit or marginal cost to the commodity in question).
The block size limit may not have been intended to create market scarcity necessary for the maintenance of the network after block bounties drop off, but it does do that. I don't see why we should just throw it out, instead of setting up a few other trivial rules to deal with its single short coming.