Financial services company Galaxy analyzes some layer-2 solutions built on Bitcoin: economic sustainability limits according to the company.
According to a report by Galaxy Research, the majority of Bitcoin layer-2s could face long-term sustainability issues due to high operational costs. In particular, the analysis focuses on Bitcoin rollups, solutions designed to keep transactions both economical and fast.
Definition and use
Rollups are off-chain scalability solutions that increase the processing capacity of a blockchain by grouping multiple transactions into a single transaction sent to the main network.
For example, while Ethereum has already implemented rollups like Optimism and Arbitrum to improve network scalability, the implementation of rollups on Bitcoin is still in the development phase.
Cost analysis
The report highlights that Bitcoin rollups will need to generate significant revenue from transaction fees to cover their operational costs. The expense required to publish data on the Bitcoin blockchain is considerable, requiring frequent data publications by each rollup. Each transaction can occupy up to 400KB of block space, potentially increasing transaction costs.
With numerous rollups expected to publish their data every six to eight blocks, on-chain fees could increase significantly, potentially excluding smaller transactions.
With Bitcoin blocks limited to a size of 4MB, rollup transactions can occupy up to 10% of a block’s space. Galaxy Research estimates that in a low-fee environment (10 sat/vB), rollups could face monthly expenses of $460,000 to make transactions on the Bitcoin blockchain. In high-cost conditions (50 sat/vB), such expenses could increase up to $2.3 million per month.
