Block size is a contentious issue. Programmers and businessmen proposed various sizes, without fully clarifying the economic impact. Let’s put the horse in front of the carriage by laying out the economic effects of larger vs smaller block size first, so that Bitcoiners can then choose appropriate technical solutions.
An economic good is something that is both useful and scarce. Air is useful, but generally, air is not scarce. Hence, air is not an economic good and there exists no price for it. On a submarine, air is scarce. In this situation, air becomes an economic good. It gets a definite price, which in turn determines the value of the machinery that produces the air, the salaries of the people that make the machinery (at least in capitalism) and so on. Understanding scarcity and economic goods is prerequisite for understanding the effect of transaction scarcity, or its absence. Bitcoin price as a variable of hoarding
Currency derives its value from hoarding. Every time somebody spends currency, they value having the currency less than having the acquired good or service. When people hoard currency, they value holding the currency more than having any other good or service or alternative currency. They could exchange it, but they prefer not to, thereby manifesting the currency’s value compared to all other goods, services and alternative currencies.
All benefits of a currency manifest themselves in the question of whether it is being hoarded or not. If a token can hardly be transferred to others, people will not even accept it. If a token can be multiplied easily, people will not hoard it. If a token is perishable, people will not hoard it. But if it ticks all the boxes, people value having it and will try to hold on to it as long as they can. […]
