The Bitcoin Layer 2 scaling solutions, particularly Rollups, have been a hot topic among developers in the cryptocurrency space as a method to make Bitcoin payments cheaper and faster while maintaining decentralization. However, a report released by Galaxy Research on Friday posits that the vast majority of Bitcoin Rollups will struggle to survive due to high costs.
(Background Summary:
The founder of Mempool harshly criticized Bitcoin L2 for having “seven deadly sins of money scamming”! The founder of Ordinals agreed: It’s true.)
(Additional Context:
Bitcoin L2 is rife with chaos; “Three Major Standards” to help you distinguish between hype and genuine breakthroughs.)
Bitcoin Layer 2 scaling solutions, which also utilize the currently common Rollups, need to publish sufficient data to the main chain so that anyone running a standard Bitcoin node can rebuild the latest state of the Rollup network at any time. However, Galaxy Research’s report on Friday indicated that Bitcoin Rollups require millions of dollars annually to sustain themselves due to transaction fees.
High Costs on the Bitcoin Network
Galaxy Research pointed out that Rollups publishing data to the Bitcoin base layer will face a significant challenge: the cost of publishing data. The block space on Bitcoin is extremely scarce, with each block having a storage capacity of only 4MB, while each individual data publication transaction can occupy up to 400KB (0.4MB) of block space, effectively taking up 10% of the entire block.
With multiple Rollups competing against each other, data is expected to be published once every 6 to 8 blocks. Rollups could quickly drive base layer fees to new highs, making the cost of small transactions prohibitively expensive. Given the competition for block space, only Rollups that can generate the most fee revenue and pay block fees will be able to sustain operations.
Galaxy Research estimates that in a low-fee environment, where the cost of ordinary transactions is 10 sat/VB, Rollups would incur monthly costs of $460,000. In a high-fee environment, where Ordinals or tokens minted through Runes or the BRC-20 standard are highly active at 50 sat/VB, monthly costs could reach $2.3 million.
Can BOB Solve the Problem?
This estimate is based on the technical limitations of current solutions. According to a report by Decrypt, an emerging Bitcoin Rollups project called “Build on Bitcoin” (BOB) claims to have the potential to resolve this issue. This is a hybrid Layer 2 solution that combines Bitcoin and Ethereum. Currently, BOB functions solely as an Ethereum L2, providing fast, nearly free transactions, but it plans to upgrade to facilitate direct Bitcoin usage.
BOB co-founder Alexei Zamayatin tweeted that he believes Bitcoin Rollups can be as inexpensive as Ethereum Rollups. However, he argued that using the Bitcoin main chain for data retrieval is fundamentally misguided; he suggests utilizing Celestia or Bitcoin sidechains to achieve the goal, although this option may compromise Bitcoin’s complete decentralization and security:
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