What makes a blockchain more attractive than the next? How come some are considered fast and slow? How is one more valuable than the next? In this article, I will try my best to explain what blockspace is and how its design is at the core of every single blcokchain’s value proposition.

Blockspace is the storage availability on a blockchain network to store information (data) and run code. This is where transactions are stored via the Merkle root and Merkle tree. Blockspace is important because the more efficient the blockspace design, the better the user experience it brings.

For example, the Bitcoin network has been known to have high transaction fees. The block limit on the Bitcoin network is limited to 1MB which limits transaction processing time. In times of high demand, transaction fees rise due to:

• Limited Blockspace

  Blockspace on Bitcoin follows a limited supply and demand curve. Users are competing for storage within the next block to be confirmed by Bitcoin Miners, and therefore with limited storage availability users are incentivized to pay higher transaction fees.

  Paying higher transaction fees make it more attractive for miners to confirm their transaction on the next block.

• Confirmation time

  A new block on the Bitcoin network is added (confirmed by a miner) about every 10 minutes. This creates the competitive nature for users to increase their transaction fee to incentivize miners to include their transaction in the next block.

  The Bitcoin protocol was designed to have a new block confirmed about every 10 minutes. To keep this consistent the protocol increases/decreases its mining difficulty to keep the mean confirmation time as close to 10 minutes as possible.

  The difficulty adjustment keeps the block confirmation interval consistent and provides stability and consistency to the network. Ensuring the network keeps true to its inflationary and halving design.

• Miners

  Miners play a vital role in the competition and economics of blockspace on the Bitcoin network. Not only because the winning miner decides the transactions to include in the next block, but most importantly because of the business model behind Bitcoin mining.

  Miners are faced with overhead costs such as hardware, mining facilities, and the energy costs of running a mining facility.

  High transaction fees are directly correlated with higher network congestion (Higher user activity). When fees and daily active users increase, the Bitcoin economy is healthier and the mining industry has higher revenue. However, the mining difficulty increases mining operations become more costly.

  Miners hold a treasury of the Bitcoin they’ve been rewarded over time, and sell this Bitcoin to pay their operating costs. As mining difficulty increases, mining companies tend to sell more of their Bitcoin for cash due to their higher operating costs. This is an effect of a demand-pull inflationary shift in the Bitcoin economy.

Higher network activity = higher competition for blockspace = higher mining difficulty = higher operating costs = higher transaction fees.

The economics of mining deserves its own dedicated article as the topic is quite intricate. But, for this lesson, it is vital to understand that the Bitcoin blockspace is purposely designed to be competitive and to keep a consistent confirmation time regardless of high and low transaction volume.

Please refer to the youtube video in the credits where Glassnode does a great job teaching an introduction to the economics of mining.

Scenario (User A submits Bitcoin transaction):

User A submits a transaction and for any particular reason this user wants their transaction to be confirmed as fast as possible. User A can go to a block explorer and see the average transaction fee and network activity. Here is an example of what they could look at:

Referencing the photo, at this time the average (medium priority) transaction fee is $2.85. And a high priority is priced at $3.18. User A could then hypothetically pay $10 for their transaction fee and have a VERY high prioritized transaction. The fee is rewarded to the miner who mined the block that included User A’s transaction. In theory, User A’s transaction should be confirmed in the next block.

Blockspace is THE commodity within blockchains. Similarly, bandwidth is the commodity of the internet as we know it today. The best practices for blockspace are still being built and explored. As research and development matures within the industry so will the architecture for blockspace optimization. In turn, user experience will benefit.

Ethereum and EVM compatible layer 2s have introduced more efficient information storage designs for their their networks. Optimism roll-ups and zero-knowledge proofs are friendlier for enterprise operations as these data storing techniques are designed to bundle larger amounts data input, optimize blockspace, and lower fees to create a better user experience.

Sources:

https://www.generalist.com/briefing/blockspace

https://studio.glassnode.com/home

https://studio.glassnode.com/workbench/200bd363-9ce1-49bc-7285-1165833c87b4

What makes a blockchain more attractive than the next? How come some are considered fast and slow? How is one more valuable than the next? In this article, I will try my best to explain what blockspace is and how its design is at the core of every single blcokchain’s value proposition.

Blockspace is the storage availability on a blockchain network to store information (data) and run code. This is where transactions are stored via the Merkle root and Merkle tree. Blockspace is important because the more efficient the blockspace design, the better the user experience it brings.

For example, the Bitcoin network has been known to have high transaction fees. The block limit on the Bitcoin network is limited to 1MB which limits transaction processing time. In times of high demand, transaction fees rise due to:

• Limited Blockspace

  Blockspace on Bitcoin follows a limited supply and demand curve. Users are competing for storage within the next block to be confirmed by Bitcoin Miners, and therefore with limited storage availability users are incentivized to pay higher transaction fees.

  Paying higher transaction fees make it more attractive for miners to confirm their transaction on the next block.

• Confirmation time

  A new block on the Bitcoin network is added (confirmed by a miner) about every 10 minutes. This creates the competitive nature for users to increase their transaction fee to incentivize miners to include their transaction in the next block.

  The Bitcoin protocol was designed to have a new block confirmed about every 10 minutes. To keep this consistent the protocol increases/decreases its mining difficulty to keep the mean confirmation time as close to 10 minutes as possible.

  The difficulty adjustment keeps the block confirmation interval consistent and provides stability and consistency to the network. Ensuring the network keeps true to its inflationary and halving design.

• Miners

  Miners play a vital role in the competition and economics of blockspace on the Bitcoin network. Not only because the winning miner decides the transactions to include in the next block, but most importantly because of the business model behind Bitcoin mining.

  Miners are faced with overhead costs such as hardware, mining facilities, and the energy costs of running a mining facility.

  High transaction fees are directly correlated with higher network congestion (Higher user activity). When fees and daily active users increase, the Bitcoin economy is healthier and the mining industry has higher revenue. However, the mining difficulty increases mining operations become more costly.

  Miners hold a treasury of the Bitcoin they’ve been rewarded over time, and sell this Bitcoin to pay their operating costs. As mining difficulty increases, mining companies tend to sell more of their Bitcoin for cash due to their higher operating costs. This is an effect of a demand-pull inflationary shift in the Bitcoin economy.

Higher network activity = higher competition for blockspace = higher mining difficulty = higher operating costs = higher transaction fees.

The economics of mining deserves its own dedicated article as the topic is quite intricate. But, for this lesson, it is vital to understand that the Bitcoin blockspace is purposely designed to be competitive and to keep a consistent confirmation time regardless of high and low transaction volume.

Please refer to the youtube video in the credits where Glassnode does a great job teaching an introduction to the economics of mining.

Scenario (User A submits Bitcoin transaction):

User A submits a transaction and for any particular reason this user wants their transaction to be confirmed as fast as possible. User A can go to a block explorer and see the average transaction fee and network activity. Here is an example of what they could look at:

Referencing the photo, at this time the average (medium priority) transaction fee is $2.85. And a high priority is priced at $3.18. User A could then hypothetically pay $10 for their transaction fee and have a VERY high prioritized transaction. The fee is rewarded to the miner who mined the block that included User A’s transaction. In theory, User A’s transaction should be confirmed in the next block.

Blockspace is THE commodity within blockchains. Similarly, bandwidth is the commodity of the internet as we know it today. The best practices for blockspace are still being built and explored. As research and development matures within the industry so will the architecture for blockspace optimization. In turn, user experience will benefit.

Ethereum and EVM compatible layer 2s have introduced more efficient information storage designs for their their networks. Optimism roll-ups and zero-knowledge proofs are friendlier for enterprise operations as these data storing techniques are designed to bundle larger amounts data input, optimize blockspace, and lower fees to create a better user experience.

Sources:

https://www.generalist.com/briefing/blockspace

https://studio.glassnode.com/home

https://studio.glassnode.com/workbench/200bd363-9ce1-49bc-7285-1165833c87b4