Originally published on: August 04, 2024
Introduction:
A recent report by Galaxy Research has shed light on the sustainability issues threatening Bitcoin layer-2 scaling networks, particularly the popular “rollups.” Despite being considered a promising solution to maintain fast, cheap, and decentralized Bitcoin payments, these networks might not be sustainable in the long run.
Challenges of Bitcoin Rollups:
Galaxy analyst Gabe Parker, in the report released on Aug. 2, emphasized the financial hurdles that Bitcoin rollups encounter, specifically the cost of posting data to the base layer. For Bitcoin rollups to succeed, they need to derive substantial revenue from transaction fees within their networks, compelling users to pay for transactions on layer-2 networks.
How Rollups Work:
Rollups function by aggregating numerous transactions into a single batch, which is then summarized and posted back to the main blockchain. Serving as a “data availability layer,” Bitcoin rollups share adequate data to enable any standard Bitcoin node to reconstruct the latest state of the rollup network.
Storage and Data Usage Concerns:
However, the limited storage capacity of Bitcoin blocks presents a challenge, with each data posting transaction consuming a significant amount of block space. Posting data to Bitcoin can utilize up to 400 kilobytes per transaction, occupying 10% of an entire block. With multiple rollups anticipated to post data every six to eight blocks, this could drive up base-layer fees, potentially excluding smaller transactions.
Cost Implications:
In a scenario where standard transactions cost ten satoshis per vByte (sat/VB), Galaxy Research estimates that rollups could face monthly expenses of $460,000 to ensure Bitcoin’s security. In high-fee environments of 50 sat/VB, costs may escalate to $2.3 million.
Potential Solutions:
Co-founder of “Build on Bitcoin” (BOB), Alexei Zamayatin, proposes alternative approaches to enhance the cost efficiency of Bitcoin rollups. Zamayatin advocates for leveraging solutions like Celestia or a merge-mined Bitcoin sidechain to reduce expenses, even though this may compromise some aspects of Bitcoin’s complete decentralization and security.
Outlook:
Despite the challenges, there is optimism that Bitcoin rollups can compete in cost-effectiveness with Ethereum rollups. The ongoing debate around utilizing Bitcoin’s main chain for data availability versus alternate solutions prompts the industry to explore innovative strategies that strike a balance between efficiency and security.
Social Media Response:
Addressing concerns raised in the Galaxy report, Zamayatin took to Twitter, expressing confidence that Bitcoin rollups will not be significantly more costly than Ethereum rollups, affecting adoption rates.
By discussing the challenges, potential solutions, and industry perspectives, the report contributes to a broader discourse on enhancing the sustainability of Bitcoin layer-2 rollups.
