The Raiden Network is an off-chain scaling solution, enabling near-instant, low-fee and scalable payments. It’s complementary to the Ethereum blockchain and works with any ERC20 compatible token. The Raiden project is work in progress. Its goal is to research state channel technology, define protocols and develop reference implementations.
Blockchains don’t scale well because there needs to be global consensus on the order and outcome of all transfers. Every participant needs to learn about all updates to the shared ledger. Hardware and bandwidth constraints set a limit on the number of updates per second that can be shared in a decentralized network.
The basic idea of the Raiden Network is to avoid the blockchain consensus bottleneck. This is done by leveraging a network of payment channels which allow to securely transfer value off-chain, i.e without involving the blockchain for every transfer.
Scales linearly with the number of participants
Transfers can be confirmed within a subsecond
Individual transfers don’t show up in the global shared ledger
Works with any token that follows Ethereum’s standardized token API (ERC20)
Transfer fees can be orders of magnitude lower than on the blockchain
Low transaction fees allow to efficiently transfer tiny values
There are quite a few high profile Ethereum token based projects competing to bring blockchain based payments to the masses. Especially in developing countries these efforts may potentially improve the life of millions. The Raiden Network can be a crucial building block, as significant adoption relies on scalable technology and competitive fees.
Cash as we know it is on the retreat as there is a trend towards cashless societies. Scalable blockchain based payments can help to preserve the private and decentralized nature of cash while updating its user experience to the expectations of a new generation.
Blockchains are a hot candidate to become the payment infrastructure of the upcoming machine-to-machine economy. IoT may increase the number of commercial transactions by an order of magnitude and the cheaper the cost of transfers become, the more use cases emerge. Micropayments can be used to get fine grained access to APIs, bandwidth, computing power, storage, electricity, basically any infrastructure. The same goes for content or entertainment such as webpages, gaming, video or audio streaming. Already today many proposed DApps rely on tiny payments between participants in the network to incentivise cooperative behaviour.
Next to payments, the exchange of tokens is probably the second most prominent use case of blockchains. This is even more so the case, if the current trend of tokenization continues. Decentralized exchanges built on Raiden Network’s atomic token swaps feature allow to instantly exchange tokens at low cost.