Challenges in Data Availability and Rollups Posed by Bitcoin's Blockspace 🚀

Challenges with Bitcoin’s Blockspace for Rollups

Bitcoin’s blockspace is limited, with each block capped at 4MB. This poses a challenge for Rollups using Bitcoin as a data availability layer. Rollups based on Bitcoin, especially ZK-based ones, aim to post ZK-Proof outputs and state differences every 6-8 blocks. However, each data post consumes a significant portion of the blockspace, occupying 10% of a block.

Competition for block inclusion among multiple Rollups will intensify, potentially straining Bitcoin’s transaction fee market. Rollups on Bitcoin will need to generate revenue from transaction fees to remain viable. This report analyzes the economic viability of Rollups on Bitcoin and explores potential solutions to address the challenges they face.

Is Bitcoin L1 Suited as a Data Availability Layer?

Rollups posting data to Bitcoin’s base layer will face high costs. Bitcoin’s blocksize is capped at 4MB, and fees are tied to the data weight of a transaction, making data-intensive transactions expensive. Transactions that occupy a significant portion of the blocksize drive up transaction fees. The emergence of Ordinals highlights this issue, with transactions costing a premium.

Rollups posting ZK-Proof outputs and state differences to Bitcoin every 6-8 blocks face challenges due to Bitcoin’s design limitations.

Verification Costs for Ethereum ZK-Rollups

ZK-Rollups on Ethereum incur high costs due to validity proofs. While ZK-Rollups pay verification costs upfront, they ensure immediate finality. ZK-Rollups finance their data posting through revenue generated from transaction fees. ZK-Sync, for example, has demonstrated the viability of this model, generating significant revenue from L2 transaction fees.

Estimating Data Posting Costs on Bitcoin

Rollups on Bitcoin face high costs to post data, requiring significant revenue from transaction fees to offset these expenses. Data posting every 6 blocks can cost millions annually. The unpredictability of fee levels adds to the challenge of estimating costs.

Rollups leveraging Bitcoin for data availability must generate substantial revenue from transaction fees to cover data posting expenses.

Bitcoin’s Blockspace Impact on Rollups

The introduction of Rollups posting data on Bitcoin will affect the block composition and increase competition for blockspace. Time-sensitive transactions may need to pay higher fees due to this increased competition.

Despite the high costs, leveraging Bitcoin for data availability offers security and decentralization benefits for Rollups.

Rollups using Bitcoin for Data Availability

Rollups must generate significant revenue from transaction fees to operate on Bitcoin.
Fee estimating engines are crucial for maximizing profitability.
Bitcoin’s blockspace limitations pose challenges for Rollups posting data.
Teams building Rollups on Bitcoin need effective go-to-market strategies.
Exploration of L3 environments may be necessary for transaction execution.
Competition for block inclusion will drive up fees for all participants.
Hedging strategies against fee spikes are essential for Bitcoin L2s.

Hot Take: Navigating the Challenges of Rollups on Bitcoin

Rollups face significant challenges when utilizing Bitcoin as a data availability layer. High costs, competition for block inclusion, and the need to generate substantial revenue from transaction fees highlight the complexity of operating Rollups on Bitcoin. While leveraging Bitcoin offers security and decentralization benefits, Rollups must innovate and strategize to overcome the economic hurdles they face in the current blockchain landscape.