A recent report from Galaxy Research has raised concerns about the long-term viability of Bitcoin layer-2 scaling solutions, particularly “rollups.” While these networks have gained traction as a means to facilitate cost-effective, rapid, and decentralized Bitcoin transactions, the report suggests that they may not be sustainable over time.
In a publication released on Friday, August 2, Galaxy analyst Gabe Parker identified the high costs associated with data posting as a significant hurdle for Bitcoin rollups that depend on transactions recorded on the main blockchain.
### Challenges for Bitcoin Rollups
Parker articulated that for Bitcoin rollups to succeed, they need to generate considerable revenue from transaction fees within their own ecosystems. This revenue stream relies on a substantial user base willing to pay for transactions on these layer-2 networks.
The mechanism of rollups involves aggregating numerous transactions into a single batch and subsequently posting a summary of this batch to the primary blockchain.
**Source:** Alexei Zamyatin
Bitcoin rollups leverage the blockchain as a “data availability layer,” ensuring enough data is posted so that any standard Bitcoin node can reconstruct the latest state of the rollup network whenever necessary.
Nonetheless, Bitcoin blocks have a storage capacity limit of 4 megabytes (MB), which makes data posting a resource-intensive endeavor. Each transaction for data posting can consume up to 400 kilobytes (0.4MB) of block space, taking up a notable 10% of an entire block.
### Survival of the Fittest
With numerous rollups anticipated to post their data every six to eight blocks, base-layer fees could experience a significant increase, potentially making smaller transactions unfeasible. To endure in this competitive landscape, rollups must excel in generating fee revenue, as this will dictate their priority in the blockchain.
Galaxy Research projected that in a low-fee scenario, where typical transactions cost ten satoshis per vByte (sat/VB), rollups would incur monthly costs of approximately $460,000 to uphold Bitcoin’s security. Conversely, in a high-fee environment of 50 sat/VB, these monthly expenses could escalate to about $2.3 million.
Alexei Zamayatin, co-founder of “Build on Bitcoin” (BOB), a hybrid rollup aimed at bridging Ethereum and Bitcoin, contends that Bitcoin rollups can be as economical as their Ethereum counterparts. However, he argues against the utilization of Bitcoin’s main chain for data availability.
Instead, Zamayatin advocates for the use of Celestia or a merge-mined Bitcoin sidechain, which, while more cost-effective, may compromise some aspects of Bitcoin’s complete decentralization and security.
In response to the Galaxy report on Twitter, Zamayatin stated, “No one will use Bitcoin L2s if they are 100x more expensive than Ethereum L2s, just because ‘it is on Bitcoin.’ Good news: They won’t be more expensive.”
### Magazine:
‘Elon Musk at Bitcoin 2024’ scam, Lazarus Group hacks, MOG phishing: Crypto-Sec.