A recent report by Galaxy Research has raised concerns about the long-term viability of many Bitcoin layer-2 scaling solutions, especially “rollups.” While these mechanisms have gained traction for their potential to keep Bitcoin transactions affordable, speedy, and decentralized, the report highlights some significant sustainability issues.
Released on Friday, August 2, analyst Gabe Parker pointed out that the expenses associated with posting data present a core challenge for Bitcoin rollups, which rely on the main blockchain for their data submissions.
### Challenges Confronting Bitcoin Rollups
Parker emphasized that for Bitcoin rollups to flourish, 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.
Rollups operate by collecting numerous transactions, condensing them into a single batch, and then posting a summary of that batch back to the primary blockchain.
*Source: Alexei Zamyatin*
Bitcoin rollups treat the blockchain as a “data availability layer,” ensuring they post enough data for any typical Bitcoin node to reconstruct the latest state of the rollup network at any moment. However, the Bitcoin blockchain is limited to a storage capacity of 4 megabytes (MB) per block, and data submissions can be quite resource-intensive. Each transaction posting can take up to 400 kilobytes (0.4MB) of block space, which amounts to 10% of a complete block.
### The Survival of the Fittest
With numerous rollups expected to submit their data every six to eight blocks, the fees associated with the base layer could skyrocket, potentially sidelining smaller transactions. In order to succeed, rollups must compete effectively in generating fee revenue, as this will dictate their priority for inclusion in the blocks.
Galaxy Research estimates that in a low-fee scenario, where standard transactions cost around ten sat/VB (satoshis per vByte—a measure of block space), rollups would face monthly expenses of approximately $460,000 to maintain Bitcoin’s security. In contrast, in high-fee scenarios of 50 sat/VB, these costs could balloon to an astonishing $2.3 million monthly.
Alexei Zamayatin, co-founder of “Build on Bitcoin” (BOB)—a hybrid rollup designed to bridge Ethereum and Bitcoin—believes that Bitcoin rollups can be as economically efficient as their Ethereum counterparts. However, he cautions against utilizing Bitcoin’s main chain for data availability. Instead, he advocates for leveraging Celestia or a merge-mined Bitcoin sidechain, which, while more affordable, may compromise some degree of Bitcoin’s full decentralization and security.
Zamayatin took to Twitter to respond to the Galaxy report, asserting, “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.”
### Additional Insights
In the broader context of cryptocurrency, topics such as the ‘Elon Musk at Bitcoin 2024’ scam, Lazarus Group hacks, and MOG phishing have emerged as critical issues within the crypto security landscape.