Why the practical applications of Bitcoin will be limited

> So the author ought to explain to us why he thinks such increases would suddenly stop

Because they have already stopped. The price of bitcoin has only dropped for the last year. You should give a reason why the drop should stop and it would start to rise again.

> The author completely ignores the economic incentive of transactions within the Bitcoin economy itself. When I give 1 BTC to my father, he can spend 1 BTC on Dell.com. No fiat conversion takes place.

Dell does not accept bitcoin. Dell accepts dollars from bitpay. The expense is paid by bitpay having a worse exchange rate than the normal bitcoin exchanges.

So yeah there is fiat transfer happening.

Out of curiosity do you know any single big retailer that actually accepts bitcoin in the sense that they are not being actually paid in fiat?

> Yet 100,000 merchants are using Bitcoin...

Merchants might use bitcoin. But customers unfortunately are not. Wordpress just stopped accepting bitcoin because they got only 2 purchases per week using it. Data from overstock suggests that it's far more common phenomenon.

Thanks to bitpay there is not really any reason for merchants not to accept it though. They get paid in fiat and they don't get any expenses from accepting it.

Again, I would say: So? So cryptocurrency found a large push from a utility that was largely illegal. Who cares? Does it diminish the utility of the technology in any way whatsoever?

Transactions not having to propagate across the network a second time in blocks is certainly nice, but that doesn't solve all the problems of large blocks. As you said, that proposal is focused on maintaining an incentive for miners to create large blocks without having to worry about orphan races.

All full nodes still need to process everyone else's transactions, so bandwidth requirements are still hefty, just not squared. Even if someone's home connection can theoretically maintain 45k tx/s, how many of those generous full node maintainers out there will be excited about the prospect of their Bitcoin node using their entire internet connection? Storage requirements will also still be fairly intensive, even if nodes prune everything but the UTXO set (that needs to be stored in RAM--although that can change--it's a half gig).

Not to mention that proposal can create problems where miners withhold transactions from other miners so they can build secret chains that other miners can't build on until they have see the withheld transactions.

All that aside, your comment still ignores the reality of the situation. The Bitcoin network has been bleeding nodes for ages, and has settled around 6500-7000, probably a little more[1]. What that says to me is that even if Gavin's 20MB block proposal works for him on paper and on his VPS, the reality is that we can barely maintain a healthy node landscape with the current stresses of the network. Upping it to 20MB will likely cause a "shedding" and we will come to the new normal, so on and so forth, until we increase the block size so much that we end up with only a handful of nodes.

This is all assuming the network continues grows to those needs, which I found doubtful.

[1]http://getaddr.bitnodes.io/

No, he means the combined (fee/tx * price * tx/block) metric must increase by 250x.

So if, for example, average fees increase by 2.5x and price increased by 10x, then transaction/block only needs to increase by 10x in order to raise this metric by 250x. Not only this is possible, but this is likely. This metric has increased by 1,000,000x in the last few years, why would it suddenly plateau right now?

You say this like it's not a thing... "if a rational market existed." Maybe we're experiencing a breakdown of understanding because your intent isn't clear, so forgive me if I've misinterpreted your sentiment.

Isn't the market mostly rational? Where is your evidence that it does not exist/that the price is not rational? To me it has the appearance that the price of bitcoin hovers around the cost of mining bitcoin, ever since the big rising bubble first popped. I am not an expert but I have been following for quite some time as mining hardware gets more efficient and the difficulty waggles mostly trending up over time.

There is no universal "electricity cost to mine a bitcoin" since mining hardware varies in efficiency, and it's true that any rational miner would stop mining if his hardware could no longer make a marginal profit on the cost of the electricity. You would get more bitcoin by just spending that part of your utility budget at an exchange. I have obsolete ASIC hardware from BFL that I only run because I have a source of free electricity and for the novelty / because it's cold. They made money for a time, and then the market corrected.

With the advances in hardware that are constantly coming from many different players in the mining hardware market, I would not be surprised to hear that many latest-gen ASIC miners are still hovering around "break-even" electricity cost to mine, and as the difficulty continues to rise, anyone waiting for delivery of their equipment goes on biting their nails, waiting to see if they will make a profit or if all their effort will have been wasted.