Concerns Over Bitcoin Layer-2 Sustainability
A recent report has brought up doubts about the long-term viability of Bitcoin Layer-2 (L2) scaling solutions, specifically rollups, which have become popular for their ability to keep transactions efficient and decentralized.
Challenges with High Costs and Limited Blockspace
Bitcoin has a blockspace restriction of 4MB per block, posing obstacles for rollups that rely on the network as a data availability layer. Rollups, especially those using zero-knowledge proofs, aim to secure their data on Bitcoin’s Layer 1 blockchain by posting proof outputs and state variances every 6-8 blocks.
- Each data posting can use up to 400KB per transaction, equivalent to 10% of a Bitcoin block’s capacity.
- The competition for block space, as blocks have been consistently full since January 2023, could lead to high transaction fees, making it economically challenging for rollups.
Revenue Generation Challenges for Rollups
The report underscores that rollups relying on Bitcoin for data availability must generate significant revenue from transaction fees to cover the costs of data posting.
- For instance, at an average fee rate of 10 sats/vByte, a rollup posting 400KB of data every 6-8 blocks could face monthly expenses of about $460,000 or $5.5 million annually.
- If the fee rate increases to 50 sats/vByte, costs could escalate to $2.3 million per month, totaling approximately $27.6 million annually.
Exploring Alternative DA Layers and Structural Changes
In light of these financial challenges, the report suggests that rollups may need to consider alternative data availability solutions like Celestia, Near, or Syscoin, offering more cost-effective alternatives.
- Transitioning to these options could reduce alignment with Bitcoin, potentially converting rollups into Validium chains rather than genuine BTC rollups.
- Another option is for rollups to reorganize as Layer 3 solutions, posting state differences to an existing Layer 2 or sidechain, reducing data posting expenses while maintaining ties to the Bitcoin network.
The Future of Bitcoin Rollups
The report concludes that the future of Bitcoin rollups hinges on their ability to strike a balance between the high costs of using the network’s secure infrastructure and attracting users to generate adequate revenue.
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