Galaxy Research warns of sustainability issues for Bitcoin Layer-2 package
A Galaxy Research report has suggested that most Bitcoin Layer-2 scale networks, especially “rollups” may not be sustainable in the long term as their popularity as a promising method to keep Bitcoin payments cheap, fast and decentralized.
In a report published on Friday, August 2nd, Galaxy analyst Gabe Parker identified the cost of posting as a fundamental challenge.
Challenges facing Bitcoin packages
Parker explained that in order for Bitcoin scrolls to thrive, they need to generate significant revenue from transaction fees on their own networks. This revenue must come from more users willing to pay for transactions on Layer-2 networks.
Rollups work by taking multiple transactions, compressing them into a single batch, and then posting a summary of this batch to the main blockchain.
Bitcoin rollups use the blockchain as a “data access layer,” posting enough data that any ordinary Bitcoin node can reconstruct the latest state of the rollup network at any given time.
However, Bitcoin blocks have a storage capacity of 4 megabytes (MB), and posting data to Bitcoin requires significant data usage. Each data posting transaction can consume up to 400 kilobytes (0.4MB) of block space, effectively accounting for 10 percent of the entire block.
Survival of witchcraft
With many coils expected to post their data every six or eight blocks, base coverage fees can increase significantly and cost less transactions. In order to survive, blocks must outperform each other in generating payment revenue, which determines their priority within blocks.
Related: Everything Bitcoin: L2s will see a wave of adoption, but security must be achieved
Galaxy Research estimates that in a low-fee environment, where ordinary transactions cost ten sat/vb (satoshis per vByte), a unit of location data, a package would cost $460,000 a month to secure Bitcoin. In high-paying areas of 50 sat/VB, monthly costs can rise to $2.3 million.
Alexei Zamyatin, the founder of “Build Bitcoin” (BOB), which aims to connect Ethereum and Bitcoin, believes that Bitcoin rolls can be as cost-effective as Ethereum rolls, but opposes using Bitcoin's main chain for data delivery.
Instead, Zamayatin recommends using Celestia or a unified Bitcoin sidechain, which, while cheaper, offers some of Bitcoin's full decentralization and security.
Zamyatin responded to the Galaxy report by tweeting, “No one will use Bitcoin L2s if they are 100x more expensive than Ethereum L2s because ‘it's on Bitcoin'.” The good news: They won't be more expensive.
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