The post Bitcoin layer-2 face uncertain future amid high operational costs appeared on BitcoinEthereumNews.com.

Digital assets firm, Galaxy, has said that most Bitcoin Layer-2 (L2) scaling networks are unsustainable. In a report by Galaxy’s research analyst, Gabe Parker, the firmer rollup networks are unlikely to survive, given the massive cost of operating them on the Bitcoin network. Although everyone agrees about the high cost, Bitcoin L2 developers are divided on whether to build directly on Bitcoin. Some have suggested that L2s build on Bitcoin and use other solutions for posting data. However, there are questions on whether such L2s could be regarded as true Bitcoin rollups. Bitcoin rollups are unsustainable because of blockspace scarcity According to Galaxy’s report, the emergence of rollups layer-2 on the Bitcoin network faces a fundamental challenge in the cost of posting data on the network. The rollups, mostly Zero Knowledge-Proof, rely on Bitcoin as their data availability (DA) layer and would have post data on the Bitcoin network. However, the size of a Bitcoin block is capped at 4 MB, which makes it unsuitable to serve as a DA layer compared to Ethereum. Per the report, the average cost for rollups posting data on the Bitcoin network will depend on transaction fees, varying between $5.5 million annually when the fee is 10 sats/vByte and $27.6 million annually when the fee is 50 sats/vByte. Bitcoin Layer-2 Costs (Source: Galaxy Digital) The cost could be much higher since Bitcoin fees could increase, especially when competition for blockspace is high. With such high costs, the rollups would have to generate a significantly high number of transactions and fees so that their revenue would exceed their costs. Although no Bitcoin L2 rollup has launched, Galaxy research identified about 65 in development. Their arrival could further increase the transaction fees on the network, affecting all users, including the rollup itself. Gabe wrote: “The consistent…

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Filed under: News - @ August 4, 2024 5:18 pm