The scalability of Bitcoin has long been a subject of debate, with layer-2 solutions emerging as a potential remedy. However, a recent report from Galaxy Research has cast doubt on the long-term sustainability of Bitcoin rollups, particularly those that rely heavily on the base layer for data availability.
Rollups, which bundle multiple transactions into a single batch before posting them to the base layer, have gained popularity as a means of increasing Bitcoin’s transaction capacity without compromising its security. However, the process of posting data to the Bitcoin blockchain involves significant costs, potentially undermining the economic viability of these scaling solutions.
The report highlights the trade-off between scalability and decentralization. To ensure the security and transparency of the Bitcoin network, rollups must rely on the base layer for data availability. This requirement means that rollup operators must compete for limited block space, driving up costs and potentially making these solutions less attractive.
The cost of posting data to the Bitcoin blockchain varies depending on network congestion. In periods of low network activity, rollups may incur relatively modest expenses. However, during peak times, the cost of data availability can escalate dramatically, potentially eroding the profitability of these scaling solutions.
To survive, rollups must generate sufficient revenue to offset the costs associated with data posting. This requires a large user base willing to pay transaction fees on the rollup network. However, the competition for users among multiple rollups could lead to a downward pressure on fees, further exacerbating the economic challenges faced by these solutions.
Alternative Approaches
Some experts, such as Alexei Zamayatin, co-founder of Build on Bitcoin (BOB), argue that using Bitcoin’s main chain for data availability is not the optimal approach. Zamayatin proposes leveraging alternative solutions, such as Celestia or merge-mined Bitcoin sidechains, to reduce costs while maintaining a high degree of decentralization.
While these alternative approaches may offer cost advantages, they also introduce additional complexities and trade-offs. The choice of data availability solution will ultimately depend on the specific requirements and priorities of each rollup project.
The sustainability of Bitcoin rollups remains a critical question for the future of the cryptocurrency. While these solutions offer the potential to enhance Bitcoin’s scalability, the challenges associated with data availability and economic viability must be carefully considered. As the competitive landscape evolves, rollup operators will need to innovate and adapt to ensure the long-term success of their projects.
