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<p style="text-align: justify">You can also read this news on BH NEWS: <a href="https://en.bitcoinhaber.net/bitcoin-faces-layer-2-scalability-issues" data-wpel-link="internal" rel="noopener noreferrer nofollow">Bitcoin Faces Layer 2 Scalability Issues</a><br></p>
<p style="text-align: justify">A recent report by Galaxy Research has shed light on the potential long-term sustainability issues concerning <a href="https://en.bitcoinhaber.net/bitcoin-under-pressure-the-impact-of-grayscale-bitcoin-trusts-management-fees" data-wpel-link="internal" rel="noopener noreferrer nofollow">Bitcoin</a>‘s Layer 2 (L2) scaling solutions. The report emphasizes that while rollup solutions have become popular for their ability to keep transactions affordable, fast, and decentralized, they might encounter economic challenges due to Bitcoin’s inherent block <a href="https://newslinker.co/category/science/space/" target="_blank" rel="noopener noreferrer nofollow" data-wpel-link="exclude">space</a> limitations and associated costs.</p>
<h2 id="high-costs-and-limited-block-space">High Costs and Limited Block Space</h2>
<p style="text-align: justify">Bitcoin’s block space, capped at 4 MB per block, presents significant hurdles for rollup solutions aiming to transmit data to Bitcoin’s secure Layer 1 (L1) network using zero-knowledge (ZK) proofs. These data submissions, reaching up to 400 KB per transaction, consume about 10% of a Bitcoin block’s capacity. Given the steady full capacity of Bitcoin blocks since January 2023, the intense competition for block space has led to escalating transaction fees, rendering rollups economically challenging.</p>
<h2 id="economic-issues">Economic Issues</h2>
<p style="text-align: justify">Galaxy Research’s report highlights that rollups leveraging Bitcoin as a data availability (DA) layer must generate substantial revenue from transaction fees to cover their data submission costs. For example, a rollup transmitting 400 KB of data every 6-8 blocks at an average fee rate of 10 sats/vByte could face monthly expenses around $460,000, scaling up to $5.5 million annually. If the fee rate rises to 50 sats/vByte, these costs could soar to $2.3 million monthly, or approximately $27.6 million annually. To break even, rollups would need a broad user base ready to pay transaction fees between $0.05 to $0.23, depending on fee rates.</p>
<h2 id="what-are-the-viable-alternatives">What Are the Viable Alternatives?</h2>
<p style="text-align: justify">Given these <a href="https://finance.coin-turk.com/" rel="noopener noreferrer nofollow" target="_blank" data-wpel-link="exclude">financial</a> pressures, the report suggests exploring more cost-effective alternative data availability solutions such as Celestia, Near, or Syscoin. However, this shift might compromise their compatibility with Bitcoin, potentially converting them into Validium Blockchains instead of authentic Bitcoin rollups. Another proposed solution is for rollups to transition into Layer 3 solutions, transmitting state differences to an existing Layer 2 or sidechain, thereby reducing data submission costs while maintaining some linkage to the Bitcoin network.</p>
<h2 id="actionable-insights">Actionable Insights</h2>
<p style="text-align: justify">For Bitcoin rollups to navigate these economic challenges effectively, they should consider:</p>
<ul>
 <li>Exploring alternative data availability solutions like Celestia, Near, or Syscoin to reduce costs.</li>
 <li>Transitioning to Layer 3 solutions to maintain network connection while lowering expenses.</li>
 <li>Developing innovative revenue strategies to compensate for high transaction fees.</li>
 <li>Encouraging a larger user base to distribute costs more evenly.</li>
 <li>Regularly evaluating the fee structure to stay competitive and sustainable.</li>
</ul>
<p style="text-align: justify">The report concludes that the future of Bitcoin rollups hinges on their ability to manage the high costs of leveraging the network’s secure infrastructure while attracting users and generating adequate revenue. Rollups must devise innovative and sustainable strategies to overcome these scalability challenges.</p>
<h5><span style="font-weight:bold;font-size:16px">The post first appeared on BH NEWS: </span> <a href="https://en.bitcoinhaber.net/bitcoin-faces-layer-2-scalability-issues" data-wpel-link="internal" rel="noopener noreferrer nofollow">Bitcoin Faces Layer 2 Scalability Issues</a></h5>

Bitcoin Faces Layer 2 Scalability Issues

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