Evaluation of Bitcoin Blockchain Data
The Bitcoin block space is very limited, with only 4MB per block. This poses challenges for Rollups wanting to use Bitcoin as a data storage layer. ZK-based Rollups are being developed on Bitcoin, posting data every 6-8 blocks. However, each data posting transaction can take up to 10% of a block (400KB), putting pressure on the available space.
8/5/20246 min read


Introduce
The Bitcoin block space is very limited, with only 4MB per block. This poses challenges for Rollups wanting to use Bitcoin as a data storage layer. ZK-based Rollups are being developed on Bitcoin, posting data every 6-8 blocks. However, each data posting transaction can take up to 10% of a block (400KB), putting pressure on the available space.
Since the beginning of 2023, Bitcoin blocks have consistently been full. The emergence of Rollups will increase competition, potentially driving transaction fees higher and making it more difficult for Rollups to operate on Bitcoin. To survive, these Rollups need to generate significant revenue from transaction fees on their network.
This report analyzes the economic feasibility of Rollups on Bitcoin, based on data from Ethereum's ZK-Rollups. It examines the potential impact on Bitcoin's block structure and discusses alternative strategies if the costs of data posting become excessively high.
Is Bitcoin L1 a viable data layer?
Rollups on Bitcoin will face the challenge of high data posting costs. Bitcoin's block space is the most expensive measured in bytes compared to other blockchains. The Bitcoin block size is limited to 4MB, and transaction fees depend on the volume of data, making transactions with larger data payloads quite costly.
This situation raises questions about the suitability of Bitcoin's Layer 1 as a data storage layer, as the high costs associated with data transactions may hinder the effective operation of Rollups and limit their ability to function efficiently. The need for alternative solutions or optimizations may become essential for Rollups to remain economically viable while relying on Bitcoin's infrastructure.


The emergence of Ordinals indicates that transactions occupying significant block space will incur high costs, driving up overall network transaction fees. For instance, the first 4MB Bitcoin transaction executed by Taproot Wizards cost $147,000 in fees.
ZK-Rollups are expected to upload proof results and state diffs every 6-8 blocks to Bitcoin L1 in the form of inscriptions. Each upload is estimated to require about 400KB of block space.
Comparing the megabytes processed per second between Bitcoin, Ethereum, and Celestia clearly illustrates that Bitcoin was not designed to function as a data availability (DA) layer. The limitations regarding block size and transaction fees on Bitcoin suggest that while it can support some data-related functionality, it is not optimized for extensive data storage or high-throughput processing like other blockchains.
Verification Costs of Proof - ZK-Rollups on Ethereum
The chart illustrates the weekly data posting costs for ZK-Rollups on Ethereum. These ZK-Rollups fund these costs through revenue generated from L2 transaction fees.
The ZK-Sync Era has demonstrated the viability of this model:
Total revenue from L2 transaction fees: $66.9 million
ZK verification and L1 data costs: $51.2 million
Total transactions processed: 417.6 million
Unique addresses: 7.8 million
Average cost per transaction: $0.16
Net profit: $15.7 million
These results indicate that the ZK-Sync Era has operated efficiently and profitably while utilizing Ethereum as a data availability layer. This model highlights the potential for ZK-Rollups to effectively manage verification costs and remain sustainable within an ecosystem that supports high transaction volume and lower fees.


Estimating Data Posting Costs on Bitcoin
Estimating the costs of data posting on Bitcoin for ZK-Rollups is a complex challenge. These costs primarily consist of two components: the ZK-Proof result and state diffs. While the size of the ZK-Proof is relatively fixed, the state diff can vary depending on the number and type of transactions, typically accounting for the majority of the data posting costs.
The estimation model assumes that a Rollup will post 400KB of data every 730 blocks (approximately one month), translating to a "settlement" on Bitcoin every hour. At a transaction fee of 10 sats/vByte on Bitcoin L1, each posting would cost approximately $630, leading to a monthly cost of around $460,000 and an annual cost of $5.5 million. However, if the average fee rises to 50 sats/vByte, monthly costs could surge to $2.3 million, equating to an annual cost of about $27.6 million.
To break even, a Rollup on Bitcoin processing 20 million transactions per month (equivalent to the volume of ZK-Sync over the past year) would need to charge transaction fees ranging from $0.05 to $0.23 depending on Bitcoin L1 fees of 10 to 50 sats/vByte. This highlights that the costs of data posting on Bitcoin L1 are quite high, posing significant economic feasibility challenges for Rollups operating on Bitcoin.


It's important to note that these estimates are based on available data and may change as data compression technologies evolve. In reality, the posting size could be smaller than 400KB at transaction volumes ranging from 10K to 2M per month. However, this analysis emphasizes that posting ZK-Proofs and state diffs on Bitcoin L1 remains a significant cost that Rollups must contend with.
Rollups that do not generate sufficient transaction fees to cover data posting costs will either have to use their treasury or seek alternative solutions. Options include:
Transitioning to another data availability (DA) layer such as Celestia, Near, or Syscoin, though this would diminish the "Bitcoin" aspect of the Rollup.
Restructuring as a Layer 3 solution, posting data to Layer 2 or sidechains, and only sending the root Merkle hash to Bitcoin.
These changes raise questions about the definition of a "Bitcoin Rollup." If it does not directly roll up to Bitcoin, can a project still be considered a Bitcoin Rollup, or does it become a Validium chain on another DA network?
Projects need to carefully weigh the costs, efficiency, and sense of "Bitcoin-ness" when faced with the challenges of data posting costs.
Bitcoin block space when Rollups launches


1. Current Status:
Since the beginning of 2023, the average daily Bitcoin block weight has consistently approached the maximum of 4MB.
The average block fullness has reached 98% since February 2023.
Reason: The emergence of Ordinals and BRC-20s has increased the number of transactions containing arbitrary data in the witness field.
2. Impact of Rollups:
A single Rollup posting 400KB of data will occupy 10% of the block weight.
This will significantly alter the data structure of transactions within each block.
The accompanying chart illustrates the block structure with two Rollups posting data every 6 blocks (as of July 18, 2024).
3. Consequences on Transaction Fees:
The demand for block space from Rollups will exert pressure on other transactions.
Time-sensitive transactions will be forced to pay higher fees to be processed promptly.
This will lead to increased fees for all Bitcoin users, including Rollups.
4. Competition and "Overpayment":
The final chart depicts the concept of "Overpayment"—the disparity between the average fee of a specific type of transaction and the average fee of the block.
On-chain activities from Runes and Ordinals have heightened competition, compelling financial transactions to pay the highest fees.
5. Prospects and Challenges:
The emergence of multiple Rollups (not just two as in the example) could exacerbate the competition for block space.
Rollups will need to balance the frequency of data postings against operational costs.
This may lead to a demand for optimizing the size of data uploads or seeking alternative solutions.
In conclusion, the rise of Rollups on Bitcoin will place significant pressure on block space, potentially increasing transaction fees and fundamentally altering the data structure within blocks. This presents challenges regarding costs and efficiency for both Rollups and conventional Bitcoin users.
Summary
The prospects of leveraging Rollups on Bitcoin as a data availability (DA) layer face numerous challenges. With an average upload size of 400KB, Rollups need to generate monthly revenues ranging from $459,000 to $2.3 million to operate profitably.
The limited block space on Bitcoin could struggle to support multiple Rollups without resulting in excessively high transaction fees. To address this, projects need to optimize fee estimates, establish partnerships with miners, and develop attractive applications on L2.
Some may explore Layer 3 solutions or integrate L2 with Bitcoin L1. However, risks remain, including the potential for money loss if operations do not generate sufficient volume and increased competition for block space.
Rollups must prepare for fee volatility by utilizing derivatives markets and off-chain mining agreements. In conclusion, building Rollups on Bitcoin requires innovative strategies and careful risk management to ensure long-term viability.
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