Experience shows us that the second possibility is the one that occurs in nature. Even the ancient Greeks where aware of this possibility and gave a name to the ultimate smallest piece of recognizable matter. This discovery in fact leads to a huge simplification of the building blocks of matter. Instead of 92 natural elements there are only 3 basic subatomic particles. Since only the outermost electron shell actually determines these properties, and the number of electrons in the outer most shell can only range between 1 and 7, the number of different chemical properties is in fact much less that the 92 naturally occurring elements.
All materials found in nature can take one of the four basic forms for matter.
When we are dealing with any state of matter, we can define how much matter is found per cubic volume. This property of how easy or how difficult it is to deform a solid is the solids elasticity. Experience also shows us that some objects become permanently deformed by an applied force and others, like a baseball, return to their original shape after the deforming force is removed. When the object returns to its original shape, no net work has been done on that object by the external force. Different materials may react to the application of external forces quite differently.