Galaxy Research Warns of Sustainability Concerns for Bitcoin Layer-2 Rollups

A recent report by Galaxy Research has raised concerns about the long-term sustainability of Bitcoin Layer-2 (L2) scaling solutions, particularly stacks, which have gained popularity as a means of keeping transactions cheap, fast and decentralized .

Despite the initial promise, the report suggests that these solutions may face economic challenges due to the inherent limitations and costs associated with the Bitcoin blockchain space.

High costs and limited blog space

Bitcoin’s block space is limited to 4 MB per block, a restriction that presents significant challenges for packets looking to leverage the network as a data availability (DA) layer. Rollups, especially those using zero-knowledge (ZK) proofs, aim to anchor their data to Bitcoin’s secure Layer 1 (L1) blockchain by publishing proof results and state differences every 6-8 blocks.

However, these data publications can consume up to 400 KB per transaction, which is equivalent to 10% of the capacity of a Bitcoin block. Since Bitcoin blocks have been consistently full since January 2023, competition for space could lead to an increase in transaction fees, making it economically unsustainable for packets and other users.

The report highlights that accumulations using Bitcoin for DA will need to generate substantial revenue from transaction fees on their networks to cover the high costs of publishing data. For example, at an average rate of 10 sats/vByte, a set that publishes 400 KB of data every 6-8 blocks could incur monthly expenses of approximately $460,000 or about $5.5 million annually.

If the rate increases to 50 sats/vByte, these costs could increase to $2.3 million per month, totaling about $27.6 million per year. To break even, stacks would need a large number of users willing to pay transaction fees ranging from $0.05 to $0.23, depending on the fee environment.

Alternative DA layers and restructuring

Given these financial pressures, the report suggests that packages may need to explore alternative DA solutions such as Celestia, Near or Syscoin, which offer more cost-effective options. However, this would reduce the alignment of the packets with Bitcoin, potentially turning them into Validium chains instead of true BTC packets.

Another potential solution is for packets to be restructured as layer 3 solutions, publishing state differences to an existing layer 2 or sidechain. This would reduce data publishing costs by maintaining some connection to the Bitcoin network.

The report concludes that the future of Bitcoin rollups will depend on their ability to balance the high costs of leveraging the network’s secure infrastructure with the need to attract users and generate sufficient revenue.

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