In Markdown, the official way to make a new paragraph is by two breaks (i.e., creating a blank line): see Basic Syntax | Markdown Guide
Since Obsidian uses Markdown, and indeed its whole philosophy is that your notes are future-proof and not tied to any one app, the structure (content with markup) should adhere to Markdown and any display preferences (typography) should be handled by Obsidian and its themes. If you open an Obsidian note in a text editor, it will be very hard to read without blank lines between paragraphs.
So I don’t want get rid of the blank lines and then boost the spacing (a la Microsoft Word). Instead, I suggest that Obsidian should have a way to reduce the displayed spacing of blank lines. That way you’d get nice typography while preserving MD formatting.
I suspect there’s an easy way to do this with CSS snippets but I haven’t tried yet. It would need to ensure that lists and code snippets still work with proper spacing.