My understanding... is that blocks were never intended to be 4mb in total. The 'extra' 3 mb was there 'in addition' for signatures/efficiency.

Now the 4 mb blocks can be consumed with... arbitrary data. Jpegs. It essentially was a blocksize increase if indirect.

What I don't understand is to whom the jpegs and memecoins can be sold. Who is buying them? Because at 30$ a piece to 'inscribe' someone is buying them otherwise they are not profitable.

I like Knots... but I don't run it as I can't imagine mempool policy alone preventing arbitrary data. The 'fee market' and fair demand for blockspace has to step in and outspend the jpeg people.