If the block size is increased such that there is enough room for all transactions....
Please be more precise.
Nobody "increases the block size" -- miners choose to create larger or smaller blocks, up to the maximum block size limit.
And quoting myself: (from my recent blog post):
Quote
The argument is that keeping one-megabyte blocks will push up transaction fees, so as the block subsidy falls smaller blocks will make it more likely that fees will make up the difference and keep the network secure.
The counter-argument is that bigger blocks allow more transactions, so even if each transaction pays a smaller fee, the total will be greater.
I think that both of those arguments are wrong, because they are equating apples and oranges. The supply being rationed by a maximum block size is some number of bytes, which translates into a certain number of transactions. But the demand for blockchain security depends on the value and nature of the transaction; very large value transactions are typically secured by real-world contracts, long-established trust relationships, lawyers, and court systems.
So there is no guarantee that future one-megabyte blocks will be full of high-fee million-dollar transactions; it is possible we would see blocks full of tiny-fee million dollar transactions, because Gringotts Bank will take the Bank of Elbonia to court if they double-spend some large value inter-bank-settlement transaction.
There is no guarantee that future one-gigabyte blocks full of smaller transactions will generate enough fees to secure the blockchain, either. Transaction confirmation speed is important for most small-value transactions, so it is likely they will be secured using semi-trusted third parties who co-sign transactions and guarantee to never allow double-spending. And if they are secured against double-spending that way, there is little incentive for either the sender or recipient to include a transaction fee
The counter-argument is that bigger blocks allow more transactions, so even if each transaction pays a smaller fee, the total will be greater.
I think that both of those arguments are wrong, because they are equating apples and oranges. The supply being rationed by a maximum block size is some number of bytes, which translates into a certain number of transactions. But the demand for blockchain security depends on the value and nature of the transaction; very large value transactions are typically secured by real-world contracts, long-established trust relationships, lawyers, and court systems.
So there is no guarantee that future one-megabyte blocks will be full of high-fee million-dollar transactions; it is possible we would see blocks full of tiny-fee million dollar transactions, because Gringotts Bank will take the Bank of Elbonia to court if they double-spend some large value inter-bank-settlement transaction.
There is no guarantee that future one-gigabyte blocks full of smaller transactions will generate enough fees to secure the blockchain, either. Transaction confirmation speed is important for most small-value transactions, so it is likely they will be secured using semi-trusted third parties who co-sign transactions and guarantee to never allow double-spending. And if they are secured against double-spending that way, there is little incentive for either the sender or recipient to include a transaction fee