You wrote:
Your explanations make sense. I'd guess the reason ancient text had no
spaces was because the real estate (paper medium) was prohibitively
expensive so they wanted to cram as much into as little space without regard
for legibility.
*****
This may seem plausible but I feel that it is not an adequate explanation.
You talk about paper, but you should realize that the use of paper began
quite late in India -- they used patra (palm leaves) or birch bark --
neither of which would have been expensive. If we look further afield, we
see that all ancient scripts were written without word breaks long before
paper was invented. The Mesopotamian civilizations used clay tablets
(anything cheaper ?), the Egyptians used papyrus sheets (also very cheap),
and the Chinese originally used bamboo slates (again very cheap).
Hence, the real reason for the absence of words breaks would seem to have
nothing to do with the cost of paper. I would suggest the actual reason is
much simpler and should be obvious: when we speak, there are no or few
spaces between words. It is more likely then that early writing imitated
the continuous flow of words. Ancient punctuation, such as it was, merely
indicated where one paused for breath !