Sponge

Sponge is a block notable for being able to erase water within a 5×5×5 area. However, this function only exists within Minecraft Classic and Indev, although they are available in Creative Mode.

Originally Sponges were only available as a normal building block in Classic mode. In Beta it is possible to obtain sponges via inventory editing or Creative mode, but their function is merely decorative; they will not remove water, as this ability was designed for the Classic indefinitely-duplicating water rather than the Beta flowing water with source blocks.

History
Sponge is a type of building block added in the update to 0.0.19a client update on June 20th, 2009. It was used as yellow for pixel art before yellow wool was introduced. Notch later hinted at adding a fully functional and obtainable Sponge to Beta in a future update.

As of Beta 1.8, the sponge block is available for use in Creative Mode, but it doesn't function. It is likely that it will return to its former usage in a later update.

Properties
Sponge is not affected by gravity, unlike sand and gravel, so it will not fall if a block is removed from beneath it. Sponges do not need light to survive, and do not decay (sponges used to decay in the implementation of the 0.0.19a update, but this was changed within 50 minutes of the release).

As a building aid
A sponge can be placed around an area underground clearing the area of water. This can greatly help construction of underwater bases, homes etc. After the player constructed the structure, the sponges can be easily removed.

As an anti-griefing measure
A sponge can be hidden in walls, floors, etc. as a defense against griefers. This can confuse and slow down griefers when attempting to flood an underground development, leaving more time for them to be caught and stopped.

In small rooms, this measure, when implemented in every vertex of said space, can stop that room flooding altogether.

Trivia

 * The code used to make sponges absorb water still exists in Beta 1.7.3, but doesn't do anything because the water physics are different.
 * In Beta, removing a sponge causes all blocks within its 5*5*5 area to update. This also happens when it is pushed with a piston. This is most likely related to the above point-the sponge is looking for water to block or unblock.

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