The competition for blockspace in the Bitcoin network is a crucial aspect that impacts how the cryptocurrency is used. With only two restrictions – technical and consensus layer limitations and economic factors – determining how blockspace is utilized, it is essential for market participants to have a deep understanding of the dynamics involved.
Blockspace is a common resource in the Bitcoin network, with every use case consuming space imposing an externality on other users. The relationship between blockspace utilization and market dynamics is complex, with consensus rules playing a critical role in governing what can or cannot be done with blockspace.
Different factors such as the amount of space used, frequency of use, and time sensitivity of a system’s blockspace requirements all play a role in determining how blockspace is utilized. Systems built on top of Bitcoin need to consider not only their own interactions with blockspace but also how they will coexist with other systems.
Constant frequency systems and variable frequency systems interact with blockspace and each other in different ways, with implications for fee markets and system viability. Understanding the trade-offs between different system architectures and the choices made by the market is crucial for the long-term evolution of the Bitcoin network.
Ultimately, the market will decide the types of systems that exist on Bitcoin, but it is important for users to be informed about the costs and benefits of different systems. The interaction between constant and variable systems will have profound implications for Bitcoin’s fee market and the scalability of different types of systems in the network.
