A recent report from Galaxy Research has cast doubt on the long-term sustainability of Bitcoin layer-2 scaling networks, specifically focusing on “rollups.” Despite their current popularity and potential to make Bitcoin transactions faster, cheaper, and more decentralized, the report, published on August 2, presents several challenges that could hinder their future viability.
Technical Overview of Rollups
Rollups are designed to enhance Bitcoin’s scalability by batching multiple transactions into a single one. They compress these transactions into a single batch and post a summary back to the main Bitcoin blockchain. This process relies on the blockchain serving as a “data availability layer,” where enough data is posted to allow any standard Bitcoin node to reconstruct the rollup network’s most recent state.
Challenges Highlighted by Galaxy Analyst Gabe Parker
Gabe Parker from Galaxy Research detailed the obstacles facing Bitcoin rollups:
- Data Posting Costs: Rollups face significant expenses due to the costs associated with posting data to Bitcoin’s base layer. Each transaction that posts data can use up to 400 kilobytes (0.4MB) of block space, taking up about 10% of a block’s total capacity.
- Block Space Limitation: With Bitcoin blocks capped at 4 megabytes, the space for posting rollup data is limited, which could drive up transaction fees on the base layer.
For rollups to be economically viable, they must generate sufficient revenue from transaction fees within their networks. This requires a large user base willing to transact on these layer-2 solutions. However, the rising base-layer fees could potentially price out smaller transactions, creating a highly competitive environment where only the most efficient rollups survive.
| Fee Environment | Cost per Transaction | Monthly Operational Cost |
|---|---|---|
| Low Fee (10 sat/VB) | 460,000 USD | Moderate |
| High Fee (50 sat/VB) | 2.3 million USD | Substantial |
Alexei Zamayatin, co-founder of the “Build on Bitcoin” (BOB) project—a hybrid rollup linking Ethereum and Bitcoin—has proposed alternatives to using Bitcoin’s main chain for data availability. He suggests utilizing platforms like Celestia or a merge-mined Bitcoin sidechain as more cost-effective options, though these may compromise some of Bitcoin’s renowned decentralization and security.
In response to the Galaxy report, Zamayatin expressed optimism about the cost-effectiveness of Bitcoin rollups compared to Ethereum’s layer-2 solutions on Twitter. He argued that no one would use Bitcoin L2s if they were significantly more expensive than those on Ethereum, reassuring that this would not be the case.
As Bitcoin continues to evolve, the development and adoption of layer-2 scaling solutions like rollups are crucial for its expansion. However, the challenges outlined by Galaxy Research underscore the need for careful consideration of both technical and economic factors in the future development of these technologies.
The ongoing dialogue between developers, researchers, and the broader crypto community will play a vital role in shaping the future of Bitcoin’s scalability solutions. With careful planning and innovation, there is potential for rollups to overcome these hurdles and become a mainstay in the Bitcoin ecosystem.
