Against large blocks

Larger blocks create too much risk to Bitcoin's decentralization
First, it should be understood that decentralization is the most important property of Bitcoin.

Larger blocks reduce decentralization via the following mechanisms:


 * Higher block propagation latency favors large miners
 * Large blocks make it too costly to run a full node

Because of those two effects and because decentralization is so critical, we should in general be conservative about raising the block size.

We should be especially hesitant to raise the block size now, because mining is already too centralized. We don't have any margin of safety there.

Counterarguments

 * Make sure to see the counterarguments on the sub-pages linked to above.
 * It's unlikely we would lose the opportunity for a decentralized currency if Bitcoin becomes corrupted. As long as the technology for decentralized currencies exist, and as long as there is some market demand for a decentralized currency, it's likely that if Bitcoin is corrupted some more decentralized currency will step in to fill the needs no longer met by Bitcoin.
 * If Bitcoin ever got to a dangerous level of centralization, we could always create some hard or soft fork to dial back the block size.
 * Some would claim that we're already at such a dangerous level.
 * It's true that decentralization is the key property of Bitcoin, but we should still be willing to sometimes sacrifice some amount of decentralization for other benefits.

We need a fee market eventually, so it's good for one to develop now
Matt Corallo writes: "Long-term incentive compatibility requires that there be some fee pressure, and that blocks be relatively consistently full or very nearly full. What we see today are transactions enjoying next-block confirmations with nearly zero pressure to include any fee at all (though many do because it makes wallet code simpler)."

Peter Todd summarizes this paper: "In short, without either a fixed blocksize or fixed fee per transaction Bitcoin will will not survive as there is no viable way to pay for PoW security. The latter option - fixed fee per transaction - is non-trivial to implement in a way that's actually meaningful - it's easy to give miners "kickbacks" - leaving us with a fixed blocksize."

Jorge Timon writes: "I agree that it's hard to predict that future, but having some competition for block space would actually help us get more data on a similar situation to be able to predict that future better. What you want to avoid at all cost (the block size actually being used), I see as the best opportunity we have to look into the future."

Mark Friedenbach writes: "It is a simple fact that the block size cannot increase so much as to cover every single use by every single person in the world, so there is no getting around the reality that we will have to transition into an economy where at least one side has to pay up for a transaction to get confirmation, at all. We are going to have to deal with this issue whether it is now at 1MB or later at 20MB. And frankly, it'll be much easier to do now."

Mark later writes: "We must be careful to use the block size limit now to get infrastructure to support a world with full blocks -- it's not that hard -- while still having a little room to grow fast if things unexpectedly break."

Ensuring Bitcoin's long term security is a tough problem. We have some vague understanding that transaction fees will eventually need to pay for security, and we're also pretty sure that a fee market will work. But our fee model right now looks nothing like it'll need to in the future. What if there are problems with how we're imagining things will work? Maybe the more experience we get with fee markets between now and when we need them, the better we'll be able to fine tune the fee market in the future to actually pay for security.

Counterarguments

 * We'll probably need a fee market with lots of users eventually, perhaps in over 20 years if the exchange rate grows faster than the block halving schedule. The best chance of achieving that is to do things to increase the number of users we'll have in 20 years. Making Bitcoin harder for users to use now mainly hurts our long term growth trajectory and reduces our options in the future. Bitcoin's security depends on its usage winning a race against its reward halving schedule.
 * The lower the block size, the more likely it is that a sudden increase in demand would result in high fees. High fees have many negative effects
 * Fee markets aren't that complicated. It's simple supply and demand. There's no need to get such a huge head start when we won't need one for so long and doing so has immediate costs.
 * Gavin writes that we already have a functioning fee market, although only if we consider txns that need to confirm quickly. If a txn has just the minimum fee above the spam limit, it will get confirmed eventually. It's unclear how current wallets and full nodes would handle lots of txns that would never confirm.
 * The far future is uncertain. We might not need a fee market for over 20 years. It's a mistake to try to plan so far ahead when we don't need to, especially when the plan involves incurring costs now to gain an uncertain benefit in 20 years. Gavin makes this argument here.
 * Peter R. has published an analysis showing that a fee market would develop even in the absence of a block size limit.
 * A criticism of this paper that seems pretty severe is that it didn't take into account that a miner's orphan rate depends on its hash power. It'd be good to see the analysis re-done with this change.
 * Long term security can't be funded via transaction fees