Sustainability Concerns Loom Over Bitcoin Layer-2 Rollups

A recent exposé by Galaxy Research has cast a shadow over the long-term viability of Bitcoin layer-2 scaling networks, particularly the much-vaunted “rollups.” Despite their initial promise of maintaining Bitcoin transactions as affordable, rapid, and decentralized, the future sustainability of these networks is now under scrutiny.

In a detailed report released on Friday, Galaxy’s analyst Gabe Parker underscored the prohibitive costs associated with data posting as a core obstacle for Bitcoin rollups, which transfer data to the foundational Bitcoin layer.

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Intrinsic Challenges Confronting Bitcoin Rollups

Parker elucidated that for Bitcoin rollups to flourish, they must secure substantial revenue from transaction fees within their own ecosystems. This necessitates a robust user base willing to pay for the transactions conducted on these layer-2 networks.

The operational mechanism of rollups involves aggregating numerous transactions, condensing them into a singular batch, and subsequently posting a summary of this batch to the primary blockchain. Bitcoin rollups leverage the blockchain as a “data availability layer,” ensuring that sufficient data is posted to enable any standard Bitcoin node to reconstruct the rollup network’s latest state at any given moment.

Nevertheless, Bitcoin blocks have a stringent storage capacity cap of 4MB, and data posting to Bitcoin is data-intensive. Each data posting transaction can consume up to 400KB (0.4MB) of block space, effectively monopolizing 10% of an entire block.

The Survival Imperative

As multiple rollups are anticipated to post their data every 6 to 8 blocks, base-layer fees are poised to escalate significantly, potentially excluding smaller transactions. To endure, rollups must outperform each other in generating fee revenue, which will determine their prioritization in the blocks.

Galaxy Research has projected that in a low-fee context, where standard transactions cost ten sat/VB (satoshis per vByte—a unit of block space data), rollups would face monthly expenditures of $460,000 to uphold Bitcoin’s security. In high-fee scenarios of 50 sat/VB, monthly costs could escalate to $2.3 million.

Alexei Zamayatin, the co-founder of “Build on Bitcoin” (BOB), a hybrid rollup designed to bridge Ethereum and Bitcoin, posits that Bitcoin rollups can achieve cost efficiency comparable to Ethereum rollups. However, he opposes utilizing Bitcoin’s main chain for data availability.

Instead, Zamayatin advocates for employing Celestia or a merge-mined Bitcoin sidechain, which, while more economical, compromises some of Bitcoin’s complete decentralization and security.