Galaxy, a digital assets company, has released a report expressing concerns about the sustainability of Bitcoin Layer-2 (L2) scaling solutions.
Research analyst Gabe Parker authored the report, which highlights the excessive operational costs associated with these networks, which may threaten their future viability.
The economic viability of Bitcoin rollups in question
Galaxy identified the core issue of the cost of data posting on the Bitcoin network, which is essential for rollups—particularly those based on Zero Knowledge-Proof technologies. These rollups use Bitcoin as their data availability (DA) layer but face limitations due to the Bitcoin block’s size cap of 4 MB. This restriction renders Bitcoin less effective as a DA layer than alternatives like Ethereum.
According to the report, the financial burden for rollups to post data on Bitcoin could range from $5.5 million to $27.6 million annually, depending on transaction fees. This estimate is based on fees ranging from 10 to 50 sats/vByte. Moreover, as competition for block space intensifies, these costs could escalate, further challenging the rollups’ operational sustainability. To be economically viable, rollups must generate substantial transaction volumes and fees to cover these costs.
Bitcoin Layer-2 Costs (Source: Galaxy Digital)
Divergent views on development strategies
The Bitcoin L2 developer community appears divided on the best approach to building these networks. Some developers advocate for building directly on Bitcoin and using alternative solutions for data posting. However, this has sparked a debate on whether such networks can still be classified as true Bitcoin rollups if they do not utilize the blockchain to post proofs.
Alexei Zamyatin, co-founder of Build on Bitcoin, suggests that rollups should explore other data availability layers like Celestia or Bitcoin-native solutions. He argues that optimistic rollups remain a viable scaling strategy, albeit potentially costly compared to Ethereum’s L2 fees. Zamyatin’s stance is that the primary goal should be cost-efficiency to attract users, regardless of whether the L2 solutions post directly to Bitcoin’s blockchain.
Alex Thorn, head of research at Galaxy Digital, further emphasizes the dilemma, questioning the authenticity of a Bitcoin L2 that does not integrate proofs and state differences directly on the Bitcoin blockchain. Meanwhile, other developers, including Orkun, the pseudonymous founder of the Bitcoin L2 network Citrea, argue that using Bitcoin as a DA layer is essential for ensuring full security and aligning incentives.
Ongoing developments and future outlook
While no Bitcoin L2 rollups have officially launched, approximately 65 projects are currently in development. Introducing these projects could exacerbate the competition for block space, potentially leading to increased transaction fees for all network users.
The report concludes that developers’ ongoing innovations in data compression and other optimizations might help mitigate some of these cost issues. However, the sector’s future remains uncertain as these technologies evolve.
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