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The hardest problem in the entire design had yet to be solved. Having a robust human rated tile system that can be rapidly turned around is a huge engineering challenge that kind of breaks the whole point of the design if it doesn't work. I wouldn't be surprised if they eventually give up and go back to a cheaper throw away second stage, or throw out the tile design completely and try for some evaporative cooling approach, again.
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Bear in mind that a lot of what's happening to the tiles now is deliberate experiments to see how much weight they can shave off and how many failed tiles they can survive. Given that the vehicle is routinely surviving reentry at this point, it doesn't seem "hard" to make the tiles more robust by paying for it with added weight. The question is whether they'll have enough weight budget to pay for it? But at this point...probably? Not my area ofc.
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"surviving reentry" and being reusable are two very different things, particularly if this is to become human rated.
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Even if it landed perfectly how is it going to be rapidly reusable with all those tiles breaking and needing repair? Then if that problem was magically engineered-away through some sort of materials science breakthrough, it still makes more sense to me to keep your big ships in a space staging area and your smaller ones as atmospheric gophers.
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All what tiles breaking and needing repair? There was remarkably little visible damage this time around compared with previous flights.

There's no materials science breakthrough needed -- the shuttle used ceramic tiles successfully its entire service life. What's needed is engineering work, and that's what SpaceX has been doing.

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You know a whole the size of a quarter can wreck the entire spacecraft and make it effectively throw away? Also, you'd want to use this many times. Making a system robust while not requiring months of refurbishment is really really hard.
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The Space Shuttle had that problem because it was aluminum with a much lower melting point. It’s one of the reasons they’re using steel.

We’ve seen much larger holes than that in previous tests. Some of the control fins burned completely through.

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For some of the tests, they removed a few tiles before launch, presumably to test that. Starship did fine.
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Weren't the tiles one of the worst obstacles to quick turnaround times for the shuttle? It was something like 18 months before one could be launched again, and that's if they were in a hurry.
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SpaceX has been specifically engineering both the tiles themselves (e.g. manufacturing) and the way that are used on the ship to be much more rapidly repairable than the Shuttle.
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By the end they could turn a shuttle around in ten weeks.
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Small ships are less efficient, especially leaving the gravity well. Thats the whole point
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Could you tell me more? I suppose a heavy two-stage rocket is not optimized from the point of view of the rocket equation, but I know nothing about this field.
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In short, the more stages the better to discard mass once it isnt necessary, and the larger to the better to improve the ratio of (ship+payload) to fuel.

Here is a decent summary.

https://gemini.google.com/share/121466b300c1

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This is only true to an extent. Yes, a larger rocket means a better mass:payload ratio, but a larger rocket also means more mass in absolute terms, and more mass means more fuel, and more fuel means more mass, and more mass means more fuel, and more fuel means more mass, and so on. This is "the tyranny of the rocket equation", and it places an upper bound on the size of rockets that need to carry their own fuel for a given gravity well. And because the larger absolute mass of a larger rocket means more fuel, which means more cost, it relies on actually being able to find enough paying customers to fill out that payload capacity every single time. This is why, for example, despite the existence of jumbo jets (which have a better mass:payload ration than smaller planes), most passenger flights are not on jumbo jets, because there's just not enough demand on most routes.
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