Raiden was established with some very basic, but powerful concepts in mind.
- Global payments is an incredibly lucrative industry, with an annual revenue of approximately $2 trillion.
- Current constraints of blockchain technology is not scalable enough to allow for sufficient penetration of this industry. Hence the need for a complementary solution.
One of blockchain’s biggest factors prohibiting it from faster mainstream adoption is the processing power required, and the length of time that it takes to confirm transactions.
The introduction of payment channels, specifically the type first described by the Lightning Whitepaper (which introduced the Lightning Network), seeks to fix the scalability and congestion issues that currently plague blockchain technology.
While the Lightning Network operates on the Bitcoin blockchain, Raiden introduces a comparable solution for the Ethereum network.
What Does Raiden Do?
Raiden addresses the issues that cause network congestion and slow processing times on the Ethereum network.
The reasoning behind this is quite simple. It’s estimated that the Ethereum network will need to be capable of processing 100,000,000.00 transactions per second. This number is calculated as being roughly twice as much as what the Visa system is currently capable of.
In the context where the global adoption of cryptocurrency payments is the new norm, it means that cryptocurrencies have to compete with current debit/credit card standards. Combine the number of Visa transactions with that of Mastercard, and you have a rough benchmark to aim for. Crude, but it’s a good place to start.
The Ethereum network drastically falls short of this number with a measly 15 transactions per second being the maximum it can currently handle.
The following is just some of the features that Raiden enables.
- Cheap transactions that are currently not achievable through Ethereum. Raiden will enable multiple transactions to occur off-chain before miners on the Ethereum network process and confirm the transaction. We will address how this works shortly.
- Private transactions that do not show on the public ledger.
- Accelerated transfer confirmations that take less than one second.
How Raiden Works
Raiden can be thought of as an extension to Ethereum, adding to its capabilities.
We will use an example to demonstrate the functionality:
Say that we have three individual parties, X, Y and Z. X wants to send 10 of an ERC-20 token such as MKR to Z (we’ll call them Xander and Zack).
Xander and Zack could very easily make a standard transaction on the blockchain, but they’re not entirely sure that the final amount will come to 10 MKR. Instead, they decide to open a payment channel.
What this does is effectively deposit 10 MKR into escrow on the Ethereum blockchain, without the transaction being finalized.
Think of it this way: Xander is filling Zack’s driveway with gravel and doesn’t yet know how many cubic metres of gravel it will require. He wants to be protected for the full amount that might be used, and so Zack opens the payment channel with the full amount in escrow.
Once the driveway is completed, they can then acknowledge that they only used 80% of the gravel expected and so the smart contract is told that the final amount will be 8 MKR. Once the transaction is finalized on the blockchain, 8 MKR will be deposited in Xander’s wallet while 2 MKR will be returned to Zack.
This seems like an incredibly inefficient way to handle this transaction, with needless layers of complexity.
Where it does come into its own, however, is when we add three or more parties.
2 Degrees of Separation
Let’s throw Xander’s friend, Yvonne, into the mix.
Yvonne comes across Zack and would like to transact with him. Performing a conventional transaction takes a prohibitive amount of time, incurs large fees and consumes a lot of resources for the entire network to validate the transaction on the blockchain.
Yvonne has previously transacted with Xander by opening a payment channel on the Raiden Network. Because Xander and Zack have also opened a payment channel through Raiden in their previous transaction, Yvonne can transact directly with Zack as they are now connected through the network.
As more and more people start using Raiden, the amount of people you can transact with grows.
It is said that we are connected to almost anyone on the planet by a maximum of six degrees of separation. As you can see, it doesn’t take long for the network to grow, allowing fast and cheap transactions with many people or businesses.
Why It Works
All the transactions happening on the Raiden Network are happening off-chain.
Because they are not taking place on the Ethereum blockchain, they don’t require the resource-heavy, expensive and slow process of the network reaching consensus to confirm the transaction.
Each person that is party to the transaction digitally signs the payment so that the smart contract is able to finalize it when the payment is finally closed and validated on the blockchain.
Raiden is set up in such a way that when it finalizes one transaction on the blockchain, this transaction can hold the information for hundreds or potentially even thousands of individual transactions.
When you consider that the processing time, resource use and expense for one transaction can be divided by hundreds of users, it’s easy to see how Raiden has the potential to revolutionize Ethereum’s use and implementation.
Payments can be made instantly on the Raiden network, and the funds will be available within minutes when the next available Raiden payment channel is confirmed by the blockchain.
If this still seems confusing, think of it in this very basic fashion:
When you visit the bank to make a deposit or withdrawal, there is usually more time spent waiting in line than with the teller.
If 100 people are waiting in line to see the teller to make small, individual transactions, it will take a very long time. If those 100 people were able to nominate a single representative to wait in line for them, the representative could hand the teller a single slip of paper that outlines the net result of all 100 customer transactions. The amount of time waiting in line is now 1% of the original figure, and as only one transaction has occurred, the price is now divided by each user as well.
Of course 100 is an arbitrary figure, but it does relay the basic concept.
Raiden is currently at the stage where their µRaiden (read: Micro Raiden) network is being used in standalone, private enterprise deployments. It is currently used to enable micropayments for pay-per-use websites.
This proof of concept is working well as they get ready to go live with the Raiden Network.
This video explains what the mechanics of the Raiden Network:
The Raiden Team
Raiden was founded by brainbot labs Est., a self-described “blockchain development studio” created in 2000 by Heiko Hees. Hees was deeply involved with Ethereum in its early days when it wasn’t certain if the project could be commercially viable. He worked as a core developer for the platform from 2014 to 2016.
Today, brainbot labs Est. has established itself as one of the top firms that develops blockchain technology.
In addition to Raiden, Brainbot is also known for their other projects such as Trustlines and Hydrachain. Brainbot are members of the Enterprise Ethereum Alliance that boasts names like Microsoft, Intel, Cisco and British Petroleum.
Competitors and Challenges
Raiden currently does not have any competitors on the Ethereum network, but is at risk of being overshadowed by the Lightning Network which performs the same functions on the Bitcoin blockchain.
It’s well-known in the blockchain community and by crypto enthusiasts that the Ethereum blockchain is better suited and more capable of advancement and mass adoption compared to Bitcoin.
The hurdle, however, lies in the fact that Bitcoin is currently far more popular and well-known by the mainstream media and the public. The scale of Raiden’s success is outside of the developers’ control as it depends on Ethereum’s popularity and level of utilization.
Raiden’s other main hurdle is how many early adopters it receives which will have a direct impact on the network’s size. This will affect how functional and effective it will be, compared to its claims. This is a typical roadblock that new companies in this area face, and should be one that Brainbot can overcome with relative ease.
How to Purchase and Store RDN
Although the Raiden Network is not a cryptocurrency but rather a system, there also exists the Raiden Network token (RDN).
RDN is an ERC-20 token that was created as an additional means of exchange to be used on the Raiden Network, and also to help fund the project. 100 million RDN exist, with half of that number currently in circulation. 34% is currently held by Brainbot, with the remainder stored in a development fund.
With RDN now becoming adopted by users and therefore having a recognized value, it has generated a substantial amount of capital for the project and its continued development.
Raiden allows the cheap and rapid transaction of any ERC-20 compliant tokens. It also enables these abilities when using Ether which is not ERC-20, but uses simple wrapper contracts which allows it to be treated as such.
RDN can be traded at several exchanges including Binance, though you will need to purchase Ether from an exchange such as Coinbase first. Once you have the appropriate accounts established, you can use any ERC-20 compliant wallet such as those offered by My Ether Wallet.
Raiden runs on the Ethereum network and is not a competitor or intended replacement.
It is an ancillary network that performs the complementary function of:
- Greater scalability with the amount of transactions that it will allow the Ethereum network to handle.
- Private transactions that are not stored on the public ledger.
- Much faster transactions.
- Cheaper transaction fees.
Raiden will hopefully be the payment channel that allows Ethereum to go mainstream, contributing to the mass adoption of blockchain and cryptocurrencies.