原文标题：Beyond Layers
原文作者:@Matigags
原文来源：Zee Prime Capital
编译：海尔斯曼，ChainCatcher
Rambling block space
This article has been written for almost a year. Market conditions have changed dramatically since the first draft, but the basic topics and papers have been unfolded. After some discussion, we decided to revise and continue with the publication.
This article will discuss:
- What is a block space?
- Why is it important?
- Blockspace as a "Weberon Commodities" VS Blockspaces as "Giffen Commodities"
- The "Jevons Paradox" on the Block Space
- The future of block space allocation
What is a block space?
Blockchains are also known as state machines. In computer science, state refers to the ability of software to remember. Nowadays, the Internet is mainly based on private domains and closed state holdings. Behind the walls of websites and apps, our shared memories are in the hands of gatekeepers.
Humans and machines are generating free-flowing information all the time, and the amount of it is so large that it fills the entire Internet. As a result, the credibility of information and truth become scarce. Blockchain can outsource our shared storage data to machines.
The truth becomes a question of block finality, because block space is our time capsule. These memories are highly specific and limited in expression. Based on the willingness of market participants to pay, they are uploaded to our "collective memory".
Dennis Nazarov describes Web2 this way:
"The business model of Internet services is based on monetizing state. Status is a competitive advantage that needs to be defended by maintaining the exclusivity and closure of the service. ”
Blockchain is effectively breaking the monopoly of applications on state keep. Since the blockchain is limited in the amount of updates it can store in a given time, state opportunities auction off its storage capacity. This storage capacity is determined by the block space.
Rob Habermeier argues that the block space is a key element of the emerging applications:
"Emerging applications rely on decentralized systems for payments, consensus, or settlement. Therefore, the application layer is the main consumer of the block space. As with any business, applications and their developers should be concerned about the quality and availability of goods in their supply chain. ”
Block space as fuel
Block space can only be turned into a reliable and credible coordination resource when it is organically scarce. Or at least instill some "sense of urgency" in order to motivate the market to exert its power to access this resource.
Just like the invention of refining crude oil into oil, the invention of shared state-keeping/blockchain distilled time into standard fuel for block space. Time is our crude oil, blockchain is the refinery, and the app is the gas station. All of this fuels the new information superhighway for value transfer.
Technology is the foundation on which society depends. As technology evolves, so does society. The Internet of the future will run on block spaces, powering application services coordinated by state machines.
Mechanical clocks helped advance the Industrial Revolution by providing a universal 9-to-5 coordination. Block spaces can help drive the next information revolution by providing a common coordination of value transfer. We're breaking down time to block times, "outsourcing" billing, and expanding the market beyond what was previously unattainable with centralized bookkeeping.
Hayek defined the market as a machine for recording change, and a price system that facilitates the coordination of social resources and knowledge. The block space is an extension of the market because it is an invention that facilitates the coordination of resources. It bundles trust with state, allowing us to calculate/verify information without considering it.
Block Space as a Veblen Good
Some revolutionary inventions started out as luxury. Let's take the invention of timekeeping as an example: mechanical clocks in the 14th century were so expensive to produce and maintain that only the wealthy could use them. Only a few centuries later, pendulum clocks made timekeeping more extensible and widespread.
Early automobiles were owned by the wealthy class. Being able to use electricity once became a social fad. Electrification has made the transition from luxury to universal in just a few decades.
Today's block space, despite being open to all on-chain users, still has luxury-like properties. Especially at a time when there is a gas spike on Ethereum, the use of block space is almost a status symbol. Is today's block space a "Weblen commodity"?
- The investment encyclopedia's summary of Weblen commodities is as follows:
- Weberon goods are goods whose demand increases as prices rise;
- Weberon merchandise is usually a well-made, exclusive, high-quality item that is a status symbol;
- Webram goods are often sought after by wealthy consumers, who value the usefulness of goods;
- The demand curve for Weberon commodities is sloping upward.
The demand for Ethereum block space can be seen as conspicuous spending, although it sometimes determines economic returns. Block space is the casino for innovators, and at the same time, the market is still looking for new, high-utility, product-marketable products.
In the Ethereum ecosystem, the price of applications is slowly being replaced by other blockchains or rollups, eventually rekindling interest in application chains, i.e., applications that run their own state machines. Although it may be cheaper elsewhere, there are still expensive and valuable activities on Ethereum. Composable high-yield products such as Ethena, Pendle, Gearbox, and their capped vaults cement Ethereum's block space, much like "Webram commodities."
For example, those blue-chip NFTs are expensive because of the gas spike at minting. Thus, through the endowment effect and the initially expensive reflective nature, these NFTs become the mainstay of the flywheel, i.e., increasingly valuable.
Whether it's the memecoin craze of 2024 or the NFT craze of 2021, the increased demand for "gambling" has made the block space on a global scale even more fascinating. Given the high cost of ETH per "ticket" and the wealth effect of SOL's rapid appreciation, Solana has become a memecoin "Schelling point".
Block space as a Giffen commodity (Giffen Good)
Not all block spaces are created equal. It's a class thing of its own. Not everyone can afford Ethereum's "caviar". Some people have to choose "rice" and "potatoes" because they are cheaper blockchains.
For non-prominent block spaces, the properties may be similar to "Giffen Commodities". "Giffen goods" are considered necessities and non-luxury goods, but they are theoretically similar to "Weblen goods" in that they both have an upward sloping demand curve, that is, demand increases as prices rise.
The theoretical existence of this commodity is expected by the lack of substitutes and income pressures. A good example of a "Giffen commodity" is that the price of potatoes rose after a famine in Ireland in 1845, but the demand for potatoes increased. Higher-quality alternatives such as caviar or meat are so out of reach that even these non-luxury items become in high demand.
"Since Giffen goods are essential, consumers are willing to pay more for them, but this also limits disposable income, making it more out of reach to buy slightly higher goods. As a result, consumers buy even more Giffen goods. ”
As a result, Ethereum's block space has similarities with other block spaces. If one wants to participate in the meme economy, block space is an essential and much-needed commodity. But ETH block space is a very expensive "lottery", and increasing block space became especially prominent during the 2021 crypto bubble, and demand was strong, continuing to attract capital to bet. As the cryptocurrency market ushers in a new bull run in 2024, more economic activity is taking place outside of Ethereum.
Will the new block space continue to resemble the properties of Giffen commodities, will new market participants be priced beyond Ethereum's block space, and what does this mean for the future of block space pricing?
I believe that as a broader market for blockspace-friendly products emerges, blockspace-related economic activity will gradually take on the characteristics of Weberen-Giffen commodities, where the demand for blockspace increases with price increases.
The "Jevons Paradox" of the Block Space
The "Jevons Paradox" is an economic paradox in which the more energy consumption is optimized, the more energy will be consumed. In the 19th century, Willian Stanley Jevons observed that more efficient steam engines led to higher coal consumption. So, will we run out of block space at some point?
With the advent of more efficient block space, the demand for it is likely to increase, especially as more and more innovative applications fill the block space with information. It's the same as widening roads doesn't stop traffic congestion.
Block spaces are not fully commoditized because the quality or state of block spaces is different. For example, traffic congestion is worse in high-density areas with more commuter populations, and we will encounter hubs with more expensive block space.
Increasing chunk space is simple, but it's essentially like building a highway in the middle of a desert. Who wants to drive through the desert every day? So, it's not just a matter of adding more block space, it's about how to efficiently allocate blocks that are in high demand
Scheduleable > scalable
The global supply of block space is increasing. When the crypto industry goes through a period of activity, often followed by mass media coverage, we are likely to see a surge in demand for block space around the world.
During periods of heavier load, demand spikes in both high-state (and quality) block space and cheap block space. More sophisticated market participants require a blockspace delivery guarantee. As the economic value of certain transactions continues to increase, the schedulability of high-state block space will become much more important than the availability of any block space.
That's why block space may never become a pure commodity. Any useful use case for blockchain in the future will involve a financial element (distributed consensus is not free), so savvy participants will pay for transaction guarantees. Citadel traders and Robinhood users play different games, and the wealthy use different banks than the middle class. Blockchain participants are no exception.
The efficiency of the allocation of block space was emphasized, with the goal of "...... Maximize the amount of existing block space and ensure that it is readily allocated to the state machines that need it most: Continuously generate and allocate global consensus resources to those who need them most. It's a business that never goes to waste. ”
Today, we're stuck in an inadequate balance of L2(3,4) frenzy – each new rollup adds more chunk space. While this may be profitable in the short term (for investors and founders), the long tail of isolated block space with extremely volatile demand is not a sustainable way to produce and distribute block space on a large scale.
The reason for this is that applications require a more comprehensive and stable environment for large-scale execution. The current block space market is fragmented and unpredictable. The expansion mindset of "adding more block space" is like adding more bridges between congested intersections without considering traffic lights and highway ramps.
It is likely that this issue will eventually be solved with a market-based approach. The block space as an original tool has expanded the market to many new use cases, but lacks the market itself. The block space may not reach its full potential until it has a proper market, including delivery and hedging allowed.
We've seen examples like this in the past. In the 70s of the 20th century, Ray Dalio, the "godfather of hedge funds", helped McDonald's hedge the input costs of chicken nuggets through futures, which was a relatively new invention at the time, resulting in stable costs and a supply of new products. So far, the cost of chicken nuggets has varied too much to be a viable product.
Blocks themselves need markets, and they may need real gas cost markets or something like that. Maybe the answer isn't the synthetic futures in the example above, but we expect a more complex method of block space allocation to emerge in the future.
As the demand for block space increases, so does the need for specific execution guarantees and global blockchain allocations (rather than native chains). In the future of the "Jevons paradox", when it comes to block space allocation, we may exist in a paradigm that transcends layers. The existing blockchain obsession is just one symptom of the early stages.
Considering the path dependence of cryptocurrencies, the dynamic nature of design constraints, and unpredictable computational pricing, it is difficult to understand the final game. Whether it's ideas around blockspace/gas swaps, chain abstractions, or the (Polkadot) core time model, these represent initial ideas outside of hierarchical design.
What really matters is the block space and the actual ownership of the user application. Everything in between is investor-sponsored entertainment, and over time, they will be abstracted. This is how the industry goes from extracting the entropy of value to generating a negative entropy narrative of value for application dominance.
Thanks to Ankit, Hasu, Rob, Luffi, and long_solitude for their comments and feedback.
Along these lines, we have made a strong investment in Lastic – a modular block space marketplace, an undisclosed chain abstraction project, backed by Biconomy since 2020, and holds DOT.