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Blockchain space tokenization (BST)

Blockchains have a physical reality: limited room in each block for transactions. When too many people want to use the network at once, demand spikes and congestion becomes a major issue. Historically, users had to choose between paying expensive fees and accepting long, uncertain wait times.

Peer-reviewed research by Input Output Research (IOR) proposes a fundamental shift in managing this scarce resource: block space. Blockchain space tokenization (BST) lets the network tokenize transaction capacity, allowing users to pay in advance for the ability to post transactions regularly.

The congestion dilemma​

Blockchains handle congestion in two ways, but both have structural flaws:

  • Auction and similar models (Bitcoin and Ethereum): Users bid against each other for faster transaction processing. Fees are unpredictable; you might pay $1 one minute and $10 just a few minutes later.
  • Fixed-fee model (Cardano's current state): Each transaction costs a predictable, flat rate. However, delays become unpredictable. If an attacker floods the network, legitimate transactions queue behind them in a first-in, first-out (FIFO) approach.

This BST research solves a seemingly paradoxical problem. Before this paper, the industry consensus was that you had to choose between low fees or fast processing, and couldn't have both. BST breaks that trade-off.

The solution: a subscription for block space​

The research proposes moving from a pay-as-you-go model to a subscription/reservation model. Instead of paying per transaction at send time, the blockchain tokenizes part of its future capacity.

BST turns the right to include a transaction in a block into a distinct digital token. Users or applications buy these tokens in advance, granting them the right to post transactions regularly over a set period with a guaranteed slot. Token holders are mathematically guaranteed to have their transactions included within a short, predictable window.

Advantages of block space tokenization​

Block space tokenization offers several advantages:

  • Enterprises: Can budget exactly how much blockchain usage costs for an entire year and know that supply chain data arrives on time.
  • DeFi: Oracles (which provide price data) need to update every few seconds. BST ensures their updates always land on time, preventing market instability caused by stale data.
  • Predictability: BST implements asymptotically optimal delays, giving users predictable transaction processing times.
  • Layer 2 protocols: Networks like Lightning set strict time bounds for participants to respond to and challenge network states. BST provides the predictable transaction delays necessary to prevent severe security issues when participants miss these critical windows.

The trade-off: challenges of block space tokenization​

While the BST system mathematically guarantees a maximum delay for transactions, the worst-case wait could still be significant. Because priority depends partly on token value held, a small token balance might still mean a longer maximum wait time during extreme network congestion.

From the blackboard to reality​

BST turns blockchain capacity into a stable, predictable, tokenized commodity that reduces delays and eliminates congestion. Midnight already incorporates several core ideas from this BST research.

These tokenization principles help Midnight manage its network resources and support its goal of offering rational privacy. Confidential business logic remains fluid, responsive, and affordable without compromising cost predictability.

Learn more​

Read the Blockchain Space Tokenization research paper for more details on tokenizing blockchain space.