A recent report from Galaxy Research has raised alarm bells about the sustainability of Bitcoin layer-2 scaling solutions, particularly rollups. Despite their promise to keep Bitcoin transactions cheap, fast, and decentralized, the report suggests that these networks might face significant long-term challenges.
The report, released on August 2, highlights a fundamental issue with Bitcoin rollups: the cost of posting data to the base layer. According to Galaxy analyst Gabe Parker, for rollups to succeed, they must generate substantial revenue from transaction fees. This means attracting many users willing to pay for transactions on these layer-2 networks.
Rollups operate by compressing numerous transactions into a single batch and then posting a summary of this batch back to the main blockchain. This process uses Bitcoin’s blockchain as a “data availability layer,” allowing any Bitcoin node to reconstruct the rollup network’s state.
However, Bitcoin’s blocks have a storage limit of 4 megabytes (MB), and posting data consumes significant space. Each transaction can occupy up to 400 kilobytes (0.4MB) of block space, or 10% of an entire block. With multiple rollups posting data every six to eight blocks, base-layer fees could rise sharply, potentially pricing out smaller transactions.
In a low-fee environment, where transactions cost ten satoshis per vByte, rollups would face monthly expenses of $460,000 to maintain Bitcoin’s security. In high-fee scenarios, costs could soar to $2.3 million.
Alexei Zamayatin, co-founder of the hybrid rollup project “Build on Bitcoin” (BOB), argues that Bitcoin rollups can be as cost-effective as Ethereum rollups. However, he advises against using Bitcoin’s main chain for data availability, suggesting alternatives like Celestia or a merge-mined Bitcoin sidechain. These options, while cheaper, compromise some of Bitcoin’s decentralization and security.
In response to the Galaxy report, Zamayatin tweeted, “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.”
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