[clarkmoody]

Could you explain a little more clearly the "externalized" cost? I.e. who actually incurs the cost of the block reward?

I understand the equation of ([transaction fees] + [block reward])*[exchange rate] / [#transactions in block].

[gst]

This externalized costs basically result in inflationary factors, as it increases the number of Bitcoins in circulation. So everyone who is holding Bitcoin is paying for them. Currently those inflationary factors are offset by the deflationary factors (more users, more adoption).