Bitcoin Layer-2 scaling networks—specifically “bundles”—have become the talk of the town in crypto developer circles as a new way to make Bitcoin payments cheaper, faster, and more decentralized. But despite their promises, data and analysis from Galaxy Research suggests that much of Bitcoin's portfolio is unsustainable.
“Bitcoin-based rollups that post data to the base layer face a big problem: the cost of posting data,” Galaxy analyst Gabe Parker wrote in a report published Friday. “Rolls on Bitcoin should generate significant revenue from transaction fees on their own networks, driven by the large number of users paying to trade on Layer-2.”
Rollups are off-chain execution environments where transactions are “rolled up” and later stored in batches on a more decentralized and secure blockchain. Ethereum has long been used to measure scrolls like Optimism and Arbitrum, but developers have recently opened up the technology to build scrolls on Bitcoin.
Bitcoin Pack uses the Bitcoin blockchain as a “data availability layer”. This means that anyone running an ordinary Bitcoin node will post enough information on the blockchain to reconstruct the state of the coil network at any time.
Bitcoin blocks have a storage capacity of only 4MB, but posting data to Bitcoin requires a lot of data. Specifically, each data entry requires zero-knowledge verification results and state variations—the latter scaling with transaction size and type.
“Each individual data posting transaction can consume up to 400 KB (0.4 MB) of block space, which is exactly 10% of the total block,” Galaxy wrote. Because there are so many packages expected to post their data every 6 to 8 blocks, packages can quickly drive base-layer fees to new heights and cost less transactions.
Given the competition for block space, only scrolls with the highest revenue to get into the blocks can stay afloat.
Galaxy estimates that in a low-fee environment, where ordinary transactions cost 10 satoshis per vByte (10 satoshis per vByte, a unit of block space information), the package could save $460,000 in monthly costs to keep Bitcoin safe. A high-paying 50 sat/vb — whether ordinals or tokens registered with the Runes or BRC-20 standards are seeing high activity — can bring monthly spending to $2.3 million.
Of course, the fee estimates between different roll systems are still very variable—especially since no real roll has been launched on Bitcoin yet. BitcoinOS, which claims to have achieved the first zero-knowledge proof of concept on Bitcoin, told Decrypt in April that it initially expects to achieve 10x scale for transactions.
The degree to which these costs translate to package users depends on how much activity the package collects: the higher the amount, the lower the cost for individual transactions.
“It is important to note that estimates for zk-proof and state difference sizes are continually evolving as groups investigate and optimize data addition methods,” Galaxy said.
One emerging Bitcoin package system is called “Build with Bitcoin” (BOB), a hybrid package intended to interface with both Ethereum and Bitcoin. Currently, BOB is only Ethereum layer-2 that offers fast and free transactions, but it will later be upgraded to plug directly into Bitcoin.
Alexey Zamyatin, co-founder of BOB, believes Bitcoin rolls can be as cheap as Ethereum rolls—but he believes they should never use Bitcoin's main chain for data access.
Instead, he recommends using Celestia or a unified Bitcoin sidechain for this purpose—an option that is cheaper but loses the full decentralization and security of Bitcoin as a business.
“No one will use Bitcoin L2s if they are 100x more expensive than Ethereum L2s, just because ‘it's on Bitcoin',” Zamyatin wrote on Twitter for the Galaxy Report on Friday. “The good news: They won't be more expensive.
Edited by Ryan Ozawa
Daily Debrief Newspaper
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