Bitcoin Rollups Face Uncertain Future, Warns Galaxy Research

Sustained innovation and optimization in data compression and scalability are crucial for the survival of Bitcoin rollups.

A recent report from Galaxy Research raises concerns about the long-term sustainability of Bitcoin layer-2 scaling solutions, specifically rollups, which aim to keep Bitcoin transactions cheap, fast, and decentralized. Published on August 2, the report by analyst Gabe Parker outlines significant challenges these rollups face, particularly related to the costs of posting data to the Bitcoin base layer.

Bitcoin rollups work by compressing multiple transactions into a single batch and posting a summary back to the main blockchain. This process allows for faster and cheaper transactions by leveraging Bitcoin’s blockchain as a "data availability layer." However, Parker highlights the inherent challenge: Bitcoin blocks have a maximum storage capacity of 4 megabytes (MB), and each data posting transaction can consume up to 400 kilobytes (0.4MB) of this space, effectively taking up 10% of an entire block.

For Bitcoin rollups to be viable, they must generate significant revenue from transaction fees on their networks. This revenue must come from numerous users willing to pay for transactions. With multiple rollups expected to post data every six to eight blocks, base-layer fees could increase significantly, potentially pricing out smaller transactions.

Galaxy Research estimates that in a low-fee environment, where ordinary transactions cost ten satoshis per vByte, rollups would incur monthly expenses of $460,000 to maintain Bitcoin’s security. In a high-fee environment of 50 sat/VB, these costs could soar to $2.3 million.

Alexei Zamayatin, co-founder of "Build on Bitcoin" (BOB), a hybrid rollup aimed at connecting Ethereum and Bitcoin, believes that while Bitcoin rollups can be as cost-effective as those on Ethereum, using Bitcoin’s main chain for data availability may not be the best approach. Instead, Zamayatin recommends alternatives like Celestia or a merge-mined Bitcoin sidechain, which, while cheaper, may sacrifice some of Bitcoin’s decentralization and security.

In response to the Galaxy report, Zamayatin stated on Twitter, “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.”

photo source / Blockonome