Concerns Raised About the Sustainability of Bitcoin Layer-2 Rollups

The longevity of Bitcoin rollups may hinge on ongoing advancements in data compression and network scalability.

Insights from Galaxy Research

A recent report by Galaxy Research reveals that many Bitcoin layer-2 scaling solutions, especially “rollups,” might face sustainability challenges despite their appeal as a method to facilitate affordable, rapid, and decentralized Bitcoin transactions.

In the report highlighted, analyst Gabe Parker emphasized that the cost of posting data is a primary hurdle for Bitcoin rollups, which rely on the main blockchain for data verification.

Barriers Encountered by Bitcoin Rollups

Parker noted that rollups need to generate significant transaction fees on their own platforms to remain viable. This means attracting a sufficient number of users willing to pay for transactions on these layer-2 networks.

The rollup mechanism involves aggregating numerous transactions, compressing them into a single batch, and subsequently posting a summarized version to the main blockchain.

Bitcoin rollups employ the blockchain as a “data availability layer,” ensuring that sufficient data is posted to allow any standard Bitcoin node to reconstruct the rollup network’s most recent state at any point.

Nevertheless, Bitcoin blocks are limited to a storage capacity of 4MB, and the process of posting data to Bitcoin can be resource-intensive. Each data posting can utilize up to 400KB (0.4MB) of block space, which accounts for approximately 10% of a single block’s capacity.

Competitive Landscape

With several rollups set to post their data every 6 to 8 blocks, the costs associated with base-layer fees could escalate significantly, potentially making it unfeasible for smaller transactions. Hence, rollups must excel in generating fee revenue to ensure their prevalence within the blocks.

Galaxy Research predicts that in a low-fee scenario, with standard transactions costing 10 sat/VB (satoshis per vByte), monthly overheads for rollups could reach $460,000 to maintain Bitcoin’s security. In higher fee contexts of 50 sat/VB, these costs might surge to $2.3 million.

Alexei Zamayatin, co-founder of “Build on Bitcoin” (BOB), a hybrid rollup aimed at bridging Ethereum and Bitcoin, believes that while Bitcoin rollups can match Ethereum’s cost-effectiveness, he is skeptical about leveraging Bitcoin’s main chain for data availability.

He advocates for the utilization of Celestia or a merge-mined Bitcoin sidechain. While these alternatives may lower costs, they do come at the expense of some degree of Bitcoin’s total decentralization and security.

Zamayatin commented on the Galaxy report via Twitter, asserting, “There will be no users for Bitcoin L2s if they are 100 times costlier than Ethereum L2s simply because ‘it is on Bitcoin.’ The good news is: They won’t be more expensive.”