A recent report from Galaxy Research suggests that the long-term sustainability of Bitcoin layer-2 scaling networks, particularly “rollups,” may be in question, despite their popularity as a promising solution for cheap, fast, and decentralized Bitcoin payments.
The report, published on August 2nd, emphasizes the cost of posting data as a major challenge faced by Bitcoin rollups that rely on the base layer. According to Galaxy analyst Gabe Parker, for rollups to thrive, they need to generate substantial revenue from transaction fees on their own networks. This revenue can only come from a large number of users who are willing to pay for transactions on the layer-2 networks.
Rollups function by consolidating a large number of transactions into a single batch and then posting a summary of this batch to the main blockchain. This allows any ordinary Bitcoin node to reconstruct the most recent state of the rollup network at any given time.
However, Bitcoin blocks have a storage capacity limit of 4 megabytes (MB), and posting data to the blockchain requires significant data usage. Each data posting transaction can occupy up to 400 kilobytes (0.4MB) of block space, which accounts for 10% of an entire block.
The presence of multiple rollups posting their data every six to eight blocks could lead to a significant rise in base-layer fees, potentially making smaller transactions unaffordable. In order to survive, rollups must outperform each other in generating fee revenue, as this will determine their priority in the blocks.
Galaxy Research estimates that in a low-fee environment where ordinary transactions cost ten satoshis per vByte (VB), rollups would incur monthly expenses of $460,000 to maintain Bitcoin’s security. In high-fee environments of 50 satoshis per VB, monthly costs could skyrocket to $2.3 million.
Alexei Zamayatin, co-founder of “Build on Bitcoin” (BOB), a hybrid rollup aimed at connecting Ethereum and Bitcoin, believes that Bitcoin rollups can be as cost-effective as Ethereum rollups. However, he disagrees with using Bitcoin’s main chain for data availability. Instead, Zamayatin suggests using Celestia or a merge-mined Bitcoin sidechain, which may be cheaper but sacrifices some of Bitcoin’s complete decentralization and security.
Zamayatin responded to the Galaxy report on Twitter, stating, “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.”