user78: One issue that I haven't seen clearly addressed is the possible Tragedy of the Commons in Bitcoin's future (see this answer). 40 years into the future, the only significant direct benefit for honest miners is transaction fees, as the block reward is almost zero.
The potential problem here is Tragedy of the Commons - it is possible that while the entire network will benefit from miners, the financial incentive for any individual honest miner to mine will be too small, so fewer miners "than necessary" will mine, leaving the network open to 51% attacks. In this scenario, the Bitcoin network will fall pray to frequent attacks and will effectively disintegrate. Also consider extensions like Open Transactions, that might make conducting transactions on the real Bitcoin network unnecessary for most users, who will flock to 2nd level networks and reduce the miner's rewards from TX fees even more.
As Bitcoin is being designed and promoted as a Future Proof system, people have tried to analyse the system's economic behavior in this future.
What analysis has been done on this problem? Is the problem likely to happen (speculative question, I know ... but back up your arguments)? If there is a likely problem in the current implementation, what are some possible way to adjust the protocol in the future to combat this problem?
Update - please see here, I described a possible scenario that leads to network insecurity because of this issue.
Update 2 - linking to a recent thread I created on the forum about this.
Update 3 - Added a wiki entry.

user196: The "40 years" time limit isn't relevant at all. Since the reward for mining gradually decreases, miners will have to adjust along the way much before that time; actually they'll have to adjust every time the reward halves, unless they are operating with profits so high they will still be gaining money after the drop.
Since most of the miners are part of a mining pool, the tragedy of the commons can be easily avoided: the problem with the tragedy of the commons is that many individuals do not coordinate and can only act short-term instead of long-term. However a pool is a group of many individuals, hence it is much easier for a pool to decide to accept only transactions with a relevant fee.

user117: There is always an incentive to mine honestly
At present every block comes with a built-in financial reward through the creation of bitcoins. Over time, through scarcity and use, these bitcoins can be expected to go up in value. Therefore it is possible that the act of mining can be somewhat sustained purely by the value of the reward (shared out through an efficient pool) until that last bitcoin is mined. 
However, that is not guaranteed by any means so we have difficulty and transaction fees to act as safeguards. As miners shut down their loss-making equipment the difficulty reacts until it becomes profitable again. Remember, in the very early days bitcoins were almost valueless but people still mined effectively because of the very low difficulty. 
Most importantly, there is the transaction fee that which is the final, and most reliable, safeguard of all. This ensures that if a Bitcoin transaction is important enough to the client then they will pay that fee to get it mined - probably paying more for faster mining. This is especially true of second level operations (like OT) that will rely on Bitcoin for efficient reconciliation. There are only so many "paper transactions" that can occur before a margin call is made.
Assuming that Bitcoin is successful due to it's utility, it is reasonable to further conjecture that high value transactions will mix in with low value ones in a fair manner. Distributed mining pools will continue to share out the work and the subsequent fee reward based on contribution.
Overall, the combination of these forces will always tilt the balance in favour of honest miners getting more reward than dishonest ones. 
To that end it seems unlikely that a Tragedy of the Commons (where individual gain is paid for by the group until a resource is used up) will apply. 

user3631: Adjust difficulty per transaction in the block?
As I understand it a big part of the problem is that the fees people are paying might turn out to be too low. 
[UPDATED] As Nick mentions in the comments of this answer: The only reason a miner would exclude a non-zero fee transaction is to save space on the block, thereby hoping that in the event of a another miner finding the block at the same time their smaller block will reach more nodes faster and be accepted. Of the top of my head this seems like it might not be incentive enough, especially if communication technology keeps increasing.
My idea is to link the difficulty required for the solution of a specific block to both the current network difficulty as usual and to the number of transactions (or total size of) the transactions in the block. Meaning transactions now have to compete to be worthwhile to add to a block. 
I have no idea on feasibility, or if it's redundant with existing mechanisms but I assume that a change could be made to the protocol to make it so that when checking a blocks validity it takes this rule into account? Probably only if the block reward has reached or neared zero and over a certain minimum threshold number/size of 'difficulty free' transactions (which could be variable based on the utilization over the previous time period?).
I haven't sat down and though this through or looked at the bitcoin source code however. :)

user409: Public Service Mining seems quite plausible to me. In 40 years time one would hope that Bitcoin would have a large number of stakeholders who have a very strong incentive for the financial system to keep running smoothly. Those stakeholders I would expect to put non-zero effort into mining even for near-zero direct reward.

user3441: I now see a much more urgent and catastrophic threat vector potentially circa 2016.
Difficulty will tend to rise and fall such that the system-wide cost of mining is nearly the value of the coins mined (not perfectly but on a smoothed basis roughly true).
Thus the lowest-cost marginal miners will earn the highest profits and rates-of-return. Thus, as Satoshi Nakamoto anticipated, mining will become centralized among those with more capital who can buy the highest performance hardware.
This is more accentuated by the designed volatility in the price of Bitcoins, because a) marginal cost producers can go through periods of negative profits or no production, and b) more capital means more inertial reserve, economy-of-scale access to capital funding markets, and access to debt to delay insolvency so as to smooth volatility in market conditions.
EDIT: Relevant excerpt from linked question above which was deleted:

since Bitcoin is such a minuscule portion of the economy and can't create such global "network effects" on real productivity, appreciation in FX price is the main mechanism for evidence of the creation of value. Appreciation in price does create some value because it encourages the teaching, investment in, and thus spread of the currency. However, when the appreciation in FX price moves exponentially faster than any human calculable time-preference for opportunity cost, and exponentially faster than growth in spending for goods & services can (due to its connection to real world of profit & loss that adapts more slowly than speculation), then the price is dominated by wild guessing, i.e. emotional speculation.

So to capture a majority or maybe even most of the mining, an entity probably merely needs to subsidize on a large-scale.
The government or powerful elite has the funds to do this, either in public view using taxes (or deposit insurance on P2P currencies) or in documented black budgets.
Is there a scenario where the public would clamor for the government to fix a problem by doing this?
Imagine the public became heavily invested in wild "dot.com 2.0" run of Bitcoin price appreciation to say $1000, $10000, or $100000 (as some people expect). All bubbles eventually crash. Tangentially, the creator of Bitcoin would probably be a $billionaire.
So with an exponential crash in price, there could be a drastic reduction in miners, joined with a public wanting to blame something or someone. The government could probably find massive support for deposit insurance.
Thus I conclude that the computational Proof-of-Work design of Bitcoin is a serious threat to anyone who views Bitcoin as being independent of the control of the government. Noting that correlation isn't proof yet via Occam's Razor it is ostensibly designed for this outcome and thus to fall into the lap of the government.
And we are not talking about 2040. The pricing froth is building now so this could happen soon. And we also have another halving of the debasement payout rate in late 2016.
Which Btw, is when the repeating-throughout-all-recorded-history Economic Confidence Model expects this current bounce of capital flows into the USA dollar economy to turn hard down again a la 2008— exactly when we will need a P2P currency to help us avoid chaos of capital controls and liquidity collapse. Bitcoin could fail at precisely the time when we will need it most. That is what concerns me so much.
I would very, very much appreciate if any downvoters sign with a comment, in case this answer becomes prophetic we will be able to know how prescient you were.

user3441: I've read some of the linked discussions, and it seems some of the participants fail to understand the basic economic theory of the marginal cost. In any high fixed-capital business, the net present value (NPV) determines the ROI (IRR) and determines the opportunity cost where investors apply their capital. Thus, in normal functioning markets, the lowest marginal cost provider does not expand their capacity to take all of the volume at their cost, rather the market price is set by the highest marginal cost provider and the lower marginal cost sell at that price to maximize ROI and thus investment. Realize that not all investors have the same opportunity cost (some have better competing opportunities than others), thus the supply of investors at any given ROI is finite.
However there is a risk. The fundamental change facing Bitcoin's future is the shift from a forced highest marginal cost price structure— because all miners get the same price for mining a block— to a free market transaction fee pricing structure where dumping or subsidies could be used to destroy the higher marginal cost miners and gain a monopoly, thus also compromising the security of the system. However, a monopoly strategy could be applied in the current Bitcoin by dumping or subsidy to force difficulty rates up thus destroying higher marginal cost miners, and/or simply being a greater proportion of the total system hash computing power.
A solution to this problem is simple and is necessary for another reason. A market-based transaction fee does not guarantee any level of hash computing power, unless the user is motivated to pay more for more security and/or transaction processing speed. Either this is incentivized by having the recipient pay the transaction fee (which is a good idea any way), or the transaction fee should be set globally by the system to maintain a desired level of hash computing power (which means transactions that don't need it are penalized but at least it is consistent). Thinking through this further, market-based fee even if incentivized as stated, may not guarantee enough profitable business to offset the determined monopoly strategy, thus a global system transaction fee is safer.
However, a sufficiently subsidized monopoly strategy can still drive the difficulty up and/or capture a larger proportion of total hash computing power.
One potential counter-measure is LiteCoin's Scrypt, as it should make it more expensive to monopolize and reward more CPUs to be miners thus decentralizing stake, although it does open the botnet risk. If debasement is paid back to users by encouraging them to run full nodes and leveling the playing field between ASICS and CPUs using Scrypt, then it is the world's processing power versus the monopolist. The user who is not gaining from mining and thinks they are running a full node, could be advised to run a test for presence of a botnet. This plays well with my conceptualization that perpetual debasement is necessary (of which some might disagree so this answer is not making that claim). Btw, I think Proof-of-Stake moves in the opposite direction by centralizing stake.
A potential means for someone without deep pockets to monopolize Bitcoin, would be if ever there was a way to borrow sufficient Bitcoin to purchase the necessary 51% computing power, then destroy Bitcoin forcing an inflationary spiral as holders stampede to sell out, then repaying the borrowed Bitcoin at a fractional of the original value.
The current block size transaction limit doesn't accomplish anything other than cap throughput, because it doesn't move even if hashing capacity expands by either of the simple mechanisms in the prior paragraph.
Given my prior two answers got negative votes, I am also expecting this answer to fly over the heads of some voters. Apparently some of the participants either don't have a very good grasp of economics (or have a vested interest or I am wrong and they didn't comment to tell me why). I would appreciate if downvoters would at least try to defend their logic with a comment below my answer. That gives me an opportunity to debate them and show them why I think they are wrong (or to admit my mistake). The point is to make sure we collectively have the correct logic.

user78: Mike Hearn just posted about how Network Assured Contracts handle this problem. I don't find an immediate flaw with this.
This is how I understand the proposed solution:

Anyone with an interest in a high hash rate (basically, anyone holding
  a large amount of coins), can initiate or cooperate on
  SIGHASH_ANYONECANPAY transactions. Those are an effective way for
  people to say stuff "I pledge 10 BTC for the next miner to mine a
  block, provided 100 total BTC is donated in this transaction ...
  otherwise, I'll get my money back in 5 blocks"?
So, if people or organizations holding a large amount of BTC see that
  the security is too low for their standard, they can chip in ...
  provided others do so as well.


user575: There will definitely be a tragedy of the commons problem if things stand as they are now. This was discussed at some length here and elsewhere.
There are some proposed ways to address this and make transaction fees nonzero (block size limit, hardcoded fees, insurance entities, mining cartel, gentleman's agreements which are maintained for fear defection would beget more defection, etc.), but I don't think either results in the combination of competitive transaction fees and a level of hashrate which is enough to offer reasonable security.
This means that there must be some way to improve the network's security at a given hashrate. The only way I know to do that is by augmenting proof-of-work with proof-of-stake, discussed for example here. This is based on the observation that obtaining a majority of the bitcoins in existence is orders of magnitude more difficult than obtaining a majority of the hashrate.

78: <p>One issue that I haven't seen clearly addressed is the possible <a href="http://en.wikipedia.org/wiki/Tragedy_of_the_commons" rel="noreferrer">Tragedy of the Commons</a> in Bitcoin's future (see <a href="https://bitcoin.stackexchange.com/a/895/78">this answer</a>). 40 years into the future, the only significant direct benefit for honest miners is transaction fees, as the block reward is almost zero.</p>

<p>The potential problem here is Tragedy of the Commons - it is possible that while the entire network will benefit from miners, the financial incentive for any individual honest miner to mine will be too small, so fewer miners "than necessary" will mine, leaving the network open to 51% attacks. In this scenario, the Bitcoin network will fall pray to frequent attacks and will effectively disintegrate. Also consider extensions like <a href="https://bitcoin.stackexchange.com/questions/tagged/open-transactions?sort=votes&amp;pagesize=15">Open Transactions</a>, that might make conducting transactions on the real Bitcoin network unnecessary for most users, who will flock to 2nd level networks and reduce the miner's rewards from TX fees even more.</p>

<p>As Bitcoin is being designed and promoted as a <a href="https://bitcoin.stackexchange.com/questions/88/is-bitcoin-future-proof">Future Proof</a> system, people have tried to analyse the system's economic behavior in this future.</p>

<p>What analysis has been done on this problem? Is the problem likely to happen (speculative question, I know ... but back up your arguments)? If there is a likely problem in the current implementation, what are some possible way to adjust the protocol in the future to combat this problem?</p>

<p><strong>Update</strong> - <a href="https://bitcointalk.org/index.php?topic=67900.msg791889#msg791889" rel="noreferrer">please see here</a>, I described a possible scenario that leads to network insecurity because of this issue.</p>

<p><strong>Update 2</strong> - <a href="https://bitcointalk.org/index.php?topic=67900.0;all" rel="noreferrer">linking to a recent thread</a> I created on the forum about this.</p>

<p><strong>Update 3</strong> - <a href="https://en.bitcoin.it/wiki/Tragedy_of_the_Commons" rel="noreferrer">Added a wiki entry</a>.</p>
 196: <p>The "40 years" time limit isn't relevant at all. Since the reward for mining gradually decreases, miners will have to adjust along the way much before that time; actually they'll have to adjust every time the reward halves, unless they are operating with profits so high they will still be gaining money after the drop.</p>

<p>Since most of the miners are part of a mining pool, the tragedy of the commons can be easily avoided: the problem with the tragedy of the commons is that many individuals do not coordinate and can only act short-term instead of long-term. However a pool is a group of many individuals, hence it is much easier for a pool to decide to accept only transactions with a relevant fee.</p>
 117: <p><strong>There is always an incentive to mine honestly</strong></p>

<p>At present every block comes with a built-in financial reward through the creation of bitcoins. Over time, through scarcity and use, these bitcoins can be expected to go up in value. Therefore it is possible that the act of mining can be somewhat sustained purely by the value of the reward (shared out through an efficient pool) until that last bitcoin is mined. </p>

<p>However, that is not guaranteed by any means so we have difficulty and transaction fees to act as safeguards. As miners shut down their loss-making equipment the difficulty reacts until it becomes profitable again. Remember, in the very early days bitcoins were almost valueless but people still mined effectively because of the very low difficulty. </p>

<p>Most importantly, there is the transaction fee that which is the final, and most reliable, safeguard of all. This ensures that if a Bitcoin transaction is important enough to the client then they will pay that fee to get it mined - probably paying more for faster mining. This is especially true of second level operations (like OT) that will rely on Bitcoin for efficient reconciliation. There are only so many "paper transactions" that can occur before a margin call is made.</p>

<p>Assuming that Bitcoin is successful due to it's utility, it is reasonable to further conjecture that high value transactions will mix in with low value ones in a fair manner. Distributed mining pools will continue to share out the work and the subsequent fee reward based on contribution.</p>

<p>Overall, the combination of these forces will always tilt the balance in favour of honest miners getting more reward than dishonest ones. </p>

<p>To that end it seems unlikely that a Tragedy of the Commons (where individual gain is paid for by the group until a resource is used up) will apply. </p>
 3631: <p>Adjust difficulty per transaction in the block?</p>

<p>As I understand it a big part of the problem is that the fees people are paying might turn out to be too low. </p>

<p>[UPDATED] As Nick mentions in the comments of this answer: The only reason a miner would exclude a non-zero fee transaction is to save space on the block, thereby hoping that in the event of a another miner finding the block at the same time their smaller block will reach more nodes faster and be accepted. Of the top of my head this seems like it might not be incentive enough, especially if communication technology keeps increasing.</p>

<p>My idea is to link the difficulty required for the solution of a specific block to both the current network difficulty as usual and to the number of transactions (or total size of) the transactions in the block. Meaning transactions now have to compete to be worthwhile to add to a block. </p>

<p>I have no idea on feasibility, or if it's redundant with existing mechanisms but I <em>assume</em> that a change could be made to the protocol to make it so that when checking a blocks validity it takes this rule into account? Probably only if the block reward has reached or neared zero and over a certain minimum threshold number/size of 'difficulty free' transactions (which could be variable based on the utilization over the previous time period?).</p>

<p>I haven't sat down and though this through or looked at the bitcoin source code however. :)</p>
 409: <p>Public Service Mining seems quite plausible to me. In 40 years time one would hope that Bitcoin would have a large number of stakeholders who have a very strong incentive for the financial system to keep running smoothly. Those stakeholders I would expect to put non-zero effort into mining even for near-zero direct reward.</p>
 3441: <p>I now see a much more urgent and catastrophic threat vector <strong>potentially circa 2016</strong>.</p>

<p>Difficulty will tend to rise and fall such that the system-wide cost of mining is nearly the value of the coins mined (not perfectly but on a smoothed basis roughly true).</p>

<p>Thus the <a href="https://bitcoin.stackexchange.com/questions/3111/will-bitcoin-suffer-from-a-mining-tragedy-of-the-commons-when-mining-fees-drop-t/8546#8546">lowest-cost marginal miners</a> will earn the highest profits and rates-of-return. Thus, as <a href="https://bitcoin.stackexchange.com/questions/8671/any-counter-proof-that-satoshi-nakamoto-did-not-design-a-ponzi-scheme-on-purpose#comment11308_8671">Satoshi Nakamoto anticipated</a>, mining will <strong>become centralized</strong> among those with more capital who can buy the highest performance hardware.</p>

<p>This is more accentuated by the <a href="https://bitcoin.stackexchange.com/questions/8671/any-counter-proof-that-satoshi-nakamoto-did-not-design-a-ponzi-scheme-on-purpose">designed volatility</a> in the price of Bitcoins, because a) marginal cost producers can go through periods of negative profits or no production, and b) more capital means more inertial reserve, economy-of-scale access to capital funding markets, and access to debt to delay insolvency so as to smooth volatility in market conditions.</p>

<p>EDIT: Relevant excerpt from linked question above which was deleted:</p>

<blockquote>
  <p>since Bitcoin is such a minuscule portion of the economy and can't create such global "network effects" on real productivity, appreciation in FX price is the main mechanism for evidence of the creation of value. Appreciation in price does create some value because it encourages the teaching, investment in, and thus spread of the currency. However, when the appreciation in FX price moves exponentially faster than any human calculable time-preference for opportunity cost, and exponentially faster than growth in spending for goods &amp; services can (due to its connection to real world of profit &amp; loss that adapts more slowly than speculation), then the price is dominated by wild guessing, i.e. emotional speculation.</p>
</blockquote>

<p>So to capture a majority or maybe even most of the mining, an entity probably merely needs to subsidize on a large-scale.</p>

<p>The government or powerful elite has the funds to do this, either in public view using taxes (or deposit insurance on P2P currencies) or <a href="https://bitcoin.stackexchange.com/questions/8572/powerful-elite-thwarting-cryptocurrencies/8653#8653">in documented black budgets</a>.</p>

<p>Is there a scenario where the public would clamor for the government to fix a problem by doing this?</p>

<p>Imagine the public became heavily invested in wild "dot.com 2.0" run of Bitcoin price appreciation to say $1000, $10000, or $100000 (as some people expect). All bubbles eventually crash. Tangentially, the creator of Bitcoin would <a href="https://bitcoin.stackexchange.com/a/8672/3441">probably be a $billionaire</a>.</p>

<p>So with an exponential crash in price, there could be a drastic reduction in miners, joined with a public wanting to blame something or someone. The government could probably find massive support for deposit insurance.</p>

<p>Thus I conclude that the computational Proof-of-Work design of Bitcoin is a serious threat to anyone who views Bitcoin as being independent of the control of the government. Noting that correlation isn't proof yet via Occam's Razor <a href="https://bitcoin.stackexchange.com/questions/8671/any-counter-proof-that-satoshi-nakamoto-did-not-design-a-ponzi-scheme-on-purpose">it is ostensibly designed</a> for this outcome and thus to fall into the lap of the government.</p>

<p>And we are not talking about 2040. The pricing froth is building now so this could happen soon. And we also have another halving of the debasement payout rate in late 2016.</p>

<p>Which Btw, is when the repeating-throughout-all-recorded-history <a href="http://armstrongeconomics.com/models/7219-2/" rel="nofollow noreferrer">Economic Confidence Model</a> expects this <a href="http://armstrongeconomics.com/2013/03/05/beware-the-dollar-rally/" rel="nofollow noreferrer">current bounce of capital flows into the USA dollar economy</a> to turn hard down again a la 2008— exactly when we will need a P2P currency to help us avoid chaos of capital controls and liquidity collapse. <strong>Bitcoin could fail at precisely the time when we will need it most</strong>. That is what concerns me so much.</p>

<p>I would very, very much appreciate if any downvoters sign with a comment, in case this answer becomes prophetic we will be able to know how prescient you were.</p>
 3441: <p>I've read some of the linked discussions, and it seems some of the participants fail to understand the basic economic theory of the <a href="http://en.wikipedia.org/wiki/Marginal_cost" rel="nofollow noreferrer">marginal cost</a>. In any high fixed-capital business, the net present value (NPV) determines the ROI (IRR) and determines the opportunity cost where investors apply their capital. Thus, in normal functioning markets, the lowest marginal cost provider does not expand their capacity to take all of the volume at their cost, rather the market price is set by the highest marginal cost provider and the lower marginal cost sell at that price to maximize ROI and thus investment. Realize that not all investors have the same opportunity cost (some have better competing opportunities than others), thus the supply of investors at any given ROI is finite.</p>

<p>However there is a risk. The fundamental change facing Bitcoin's future is the shift from a forced highest marginal cost price structure— because all miners get the same price for mining a block— to a free market transaction fee pricing structure where dumping or subsidies could be used to destroy the higher marginal cost miners and gain a monopoly, thus also compromising the security of the system. However, a monopoly strategy could be applied in the current Bitcoin by dumping or subsidy to force difficulty rates up thus destroying higher marginal cost miners, and/or simply being a greater proportion of the total system hash computing power.</p>

<p>A solution to this problem is simple and is necessary for another reason. A market-based transaction fee does not guarantee any level of hash computing power, unless the user is motivated to pay more for more security and/or <a href="https://bitcoin.stackexchange.com/questions/1863/why-was-the-target-block-time-chosen-to-be-10-minutes/8537#8537">transaction processing speed</a>. Either this is incentivized by having the recipient pay the transaction fee (which is a <a href="https://bitcoin.stackexchange.com/questions/408/does-hoarding-really-hurt-bitcoin/1157#comment11060_1157">good idea any way</a>), or the transaction fee should be set globally by the system to maintain a desired level of hash computing power (which means transactions that don't need it are penalized but at least it is consistent). Thinking through this further, market-based fee even if incentivized as stated, may not guarantee enough profitable business to offset the determined monopoly strategy, thus a global system transaction fee is safer.</p>

<p>However, a sufficiently subsidized monopoly strategy can still drive the difficulty up and/or capture a larger proportion of total hash computing power.</p>

<p>One potential counter-measure is LiteCoin's Scrypt, as it should make it more expensive to monopolize and reward more CPUs to be miners thus decentralizing stake, although it does open the botnet risk. If debasement is paid back to users by encouraging them to run full nodes and leveling the playing field between ASICS and CPUs using Scrypt, then it is the world's processing power versus the monopolist. The user who is not gaining from mining and thinks they are running a full node, could be advised to run a test for presence of a botnet. This plays well with my conceptualization that <a href="https://bitcoin.stackexchange.com/questions/408/does-hoarding-really-hurt-bitcoin/8533#8533">perpetual debasement is necessary</a> (of which some might disagree so this answer is not making that claim). Btw, I think <em>Proof-of-Stake</em> moves in the opposite direction by <a href="https://bitcoin.stackexchange.com/questions/3111/will-bitcoin-suffer-from-a-mining-tragedy-of-the-commons-when-mining-fees-drop-t/3123#comment11077_3123">centralizing stake</a>.</p>

<p>A potential means for someone without deep pockets to monopolize Bitcoin, would be if ever there was a way to borrow sufficient Bitcoin to purchase the necessary 51% computing power, then destroy Bitcoin forcing an inflationary spiral as holders stampede to sell out, then repaying the borrowed Bitcoin at a fractional of the original value.</p>

<p>The current block size transaction limit doesn't accomplish anything other than cap throughput, because it doesn't move even if hashing capacity expands by either of the simple mechanisms in the prior paragraph.</p>

<p>Given my prior two answers got negative votes, I am also expecting this answer to fly over the heads of some voters. Apparently some of the participants either don't have a very good grasp of economics (or have a vested interest or I am wrong and they didn't comment to tell me why). I would appreciate if downvoters would at least try to defend their logic with a comment below my answer. That gives me an opportunity to debate them and show them why I think they are wrong (or to admit my mistake). The point is to make sure we collectively have the correct logic.</p>
 78: <p><a href="https://bitcointalk.org/index.php?topic=67900.msg792199#msg792199">Mike Hearn just posted</a> about how Network Assured Contracts handle this problem. I don't find an immediate flaw with this.</p>

<p>This is how I understand the proposed solution:</p>

<blockquote>
  <p>Anyone with an interest in a high hash rate (basically, anyone holding
  a large amount of coins), can initiate or cooperate on
  SIGHASH_ANYONECANPAY transactions. Those are an effective way for
  people to say stuff "I pledge 10 BTC for the next miner to mine a
  block, provided 100 total BTC is donated in this transaction ...
  otherwise, I'll get my money back in 5 blocks"?</p>
  
  <p>So, if people or organizations holding a large amount of BTC see that
  the security is too low for their standard, they can chip in ...
  provided others do so as well.</p>
</blockquote>
 575: <p>There will definitely be a tragedy of the commons problem if things stand as they are now. This was discussed at some length <a href="https://bitcointalk.org/index.php?topic=6284.0">here</a> and elsewhere.</p>

<p>There are some proposed ways to address this and make transaction fees nonzero (block size limit, hardcoded fees, insurance entities, mining cartel, gentleman's agreements which are maintained for fear defection would beget more defection, etc.), but I don't think either results in the combination of competitive transaction fees and a level of hashrate which is enough to offer reasonable security.</p>

<p>This means that there must be some way to improve the network's security at a given hashrate. The only way I know to do that is by augmenting proof-of-work with proof-of-stake, discussed for example <a href="https://bitcointalk.org/index.php?topic=37194.0">here</a>. This is based on the observation that obtaining a majority of the bitcoins in existence is orders of magnitude more difficult than obtaining a majority of the hashrate.</p>
