Galaxy Research Questions the Viability of Bitcoin’s Layer 2 Solutions

Most Bitcoin Layer 2 networks may prove unsustainable in the long run, despite their popularity as a promising method for maintaining cheap, fast, and decentralized payments. This conclusion was reached by Galaxy Research.

there are dozens of rollups being “built on bitcoin”

but only a small few will launch & survive on bitcoin

bitcoin doesn’t have enough blockspace for all of them, and the cost to post data will be much too expensive for most of them@hiroto_btc explains why in a new report pic.twitter.com/dKnDRDgjAO

— Alex Thorn (@intangiblecoins) August 2, 2024

Experts identified the cost of data placement on the base layer as the main issue facing rollups on the network of the first cryptocurrency. The use of the base layer is necessary for a regular node to restore the latest state of L2 at any time.

The block size in the Bitcoin blockchain is limited to 4 MB, and placing data within it requires significant space usage. Each such transaction can “weigh” up to 400 KB (0.4 MB), effectively occupying 10% of the total available volume.

According to analysts, with numerous rollups publishing their data every six to eight blocks, base fees could rise significantly, potentially displacing smaller transactions.

To “survive,” L2s must outperform each other in generating fees, as this will determine their priority in blocks, specialists emphasized.

According to Galaxy Research, in a low-fee environment where regular transactions cost ten sat/VB, rollups will spend $460,000 monthly to maintain security. In high-fee environments at 50 sat/VB, the figure will rise to $2.3 million.

Co-founder of the Build on Bitcoin (BOB) project, Alexei Zamyatin, stated that Bitcoin rollups can be as economically efficient as their Ethereum counterparts. He opposes using the mainnet of the first cryptocurrency to ensure data availability.

As an alternative, the expert recommends using Celestia or a Bitcoin sidechain with merged mining. The latter option sacrifices some of the advantages of full decentralization and the security of the digital gold network.

Report on L1 data costs on Bitcoin from the perspective of L2s.

My 2 cents (imho this is missing in the report).
— No-one will post data on the L1. Use @CelestiaOrg or Bitcoin-native solutions like @babylonlabs_io @nubit_org , or a merge-mined DA sidechain.
— Bitcoin L2s will… https://t.co/IU8pZ9us4s

— Alexei Zamyatin | Hiring (@alexeiZamyatin) August 2, 2024

“No one will use L2 on Bitcoin if they are 100 times more expensive than L2 on Ethereum just because ‘they are on digital gold.’ Good news: they won’t be more expensive,” concluded the expert.

Earlier, ForkLog reported on a blockchain scaling proposal for the first cryptocurrency called OP_CAT (BIP-347).