Blockchain Basics Series (5 part series — PART 2)
It’s no secret that the future of Blockchain and Cryptocurrency squarely depends on the feasibility and scalability of the underlying technology. While we can all participate in the crypto trading, one of the significant challenges faced by early users was slow confirmation on transactions.
To bring to perspective, a slow confirmation on a transaction here could mean you start an Ethereum transaction at the click of a button and wait for hours on end to get approval by the network. Raiden network seems to be the solution that will fix it all.
So, What Is Raiden?
Raiden Network is a scaling solution for Ethereum. While Ethereum is the second most used cryptocurrency in the tech world, there is less likelihood that people will use it regularly to pay for basic commodities such as chocolate bars or gasoline.
One of the contributing reasons is that compared to other payment methods such as VISA, the Ethereum is quite slow and cumbersome. The longer time taken to complete transactions has led to an increase in transaction fees, and obviously this is a pain point for many. To reach mainstream acceptance as a currency, Ethereum needs to be scaled.
The Raiden Network uses balance of proofs to enable secure and fast crypto transfers. Since global consensus is not a prerequisite here, transfer confirmation can be achieved within the bat of an eyelid.
In other words, the Raiden leverages on “off-chain” payment channels to transfer value. This means that transactions would not need to be recorded on the Ethereum Blockchain for a transaction to be complete.
This is simply because in a Raiden Network the Ethereum Blockchain is not used to verify individual transactions. Instead, it’s only used for verification of “net claims resulting from off-chain transactions”. So in a Raiden Network more transactions would occur per second while still guaranteeing accuracy and security.
Let’s break it down further with an illustration. Imagine a highway where vehicles can only travel at a speed of 15 miles per hour (to represent the slow speed of Ethereum transaction in the current Blockchain). Now, think of a series of roads built adjacent to the highway, where vehicles can travel at a speed of 150 miles for every hour (represents the Raiden Network). From time to time, the highway links to the adjacent roads.
Now, we shall delve dipper and explore how the Raiden channel works.
How does the Raiden network work?
First, remember we mentioned that the Raiden Network leverages on “off-chain” payment channels to transfer value. Therefore, to ensure that users honor their debts, the Network locks up the tokens in a smart contract for as long as the payment channel lasts. The deposit is then used to send or receive tokens from either channel partner. The process continues until either of the users decides to close the payment channel.
When a payment channel is created, users issue certified checks among themselves. However users do not need to track all checks, each participant only needs to keep a copy of the latest transaction. This simply because Raiden has a balance proof which contains all the transfers made by a participant at any particular point. There are always two balance proofs in order to accommodate the two participants in the channel.
When a participant wants to settle their balance on the Blockchain they have to close the channel. To pay or claim the balance that they are owed, a participant presents their balance proof to the smart contract and consequently closes the channel. The other party who did not close the channel will also present their balance proof. With both parties having submitted their balance proofs they can now proceed to withdraw their deposits.
Should the second party fail to submit his/her balance proof, the transfer will still proceed. The balances will be dispersed using the closing participant’s proof (assuming that the other party did not receive any transfer). This way, Raiden ensures that each of the payment channel party can be able to access their funds.
The uses of the Raiden network
The Raiden network has many uses. Here will mention a few common ones:
Retail payments: Use of crypto as an alternative currency is growing fast. Should Raiden solve the scaling problem, we are likely to see more enterprises starting to accept crypto payments.
Peer to peer transactions: Raiden network will enable easy and efficient peer to peer payments with extremely low costs. As such, Ethereum will grow to become a preferred digital currency to use especially for friends and families when they want to send money or reimburse each other.
Support micropayments: Just as the word suggests, micropayments are small payments usually made between parties in a network. Micropayments are often used with DApps and with the internet of things. Micropayments have a huge potential of going mainstream in the machine to machine payment sector. Ethereum and Raiden network will go a long way in supporting such transactions.
Decentralized exchanges: As the use of digital assets gains more popularity in the world of commerce more decentralized exchanges will be necessary. Since the Raiden network also has atomic swap features, it will also be used to build decentralized exchanges in which cryptocurrencies can be exchanged
Challenges the Raiden network might encounter
There are several challenges that Raiden should anticipate. They include:
First, it may take some time before people understand it and also be able to use appropriately. However, since people have adopted cryptocurrencies fast (yet they are only a few years old), it is expected that curve could be relatively shorter.
Secondly, unfavorable government regulations in some countries that ban or heavily regulate cryptocurrencies may affect the Raiden network thus making the future unpredictable.
Finally, being a new technology, there may also be other unforeseen issues when the network goes live. It is difficult to accurately identify all the possible challenges before a product is launched.
The Raiden network promises faster-processing speeds on Blockchain, and it may just be the technological breakthrough that will revolutionize crypto sphere. If successful, cryptocurrencies such as Ethereum will go viral as a feasible alternative to fiat debit cards and credit cards. Faster transactions have been the major selling point for fiat currencies, so if cryptocurrencies can scale, many things would really change.
If you are curious about what will happen, it will not be long before you find out. The Raiden Network will go live in a few months’ time.
Blockchain Basics Series (5 part series — PART 1): What are Smart Contracts?