What is Ethereum Layer-2 Solution: Raiden Network?

The Raiden Network is a layer-2 scaling solution for Ethereum that adopts the same principles as Bitcoin’s Lightning Network. The Off-chain scaling solution is designed to enable fast, low-fee, and immediate payments using Ethereum’s ERC-20 tokens.

The creators of the Raiden Network, Brainbot Labs Est., wanted to release a solution that would enable a fast and instantaneous payment using ERC-20 tokens where validation involved the use of digital signatures and hash-locks. The Raiden Network relieves the primary chain by taking payments off-chain, reducing on-chain Gas fees. Though the implementation appears simple, its operation is complex.

Scaling is a crucial component of a blockchain network. Early blockchains like Bitcoin, Litecoin, and Ethereum relied on the Proof of Work algorithm. However, this algorithm is inherently resource-intensive and limits the number of transactions the blockchain can process. When blockchain technology became popular and cryptocurrencies took off, limited scaling became a problem.

Lead developers started to explore scaling solutions for the Ethereum and Bitcoin blockchains. Limited throughput meant that the blockchain could not process many transactions. Accordingly, miners had the incentive to add transactions with high fees to prospective blocks. This situation brings an inevitable rise in average transaction fees. Such a situation is antithetical to the ethos of the blockchain.

Layer 2 solutions add an extra layer that processes blockchain transactions off-chain. This addition reduces the transaction load on the mother chain. Accordingly, the cumulative effect is lowering transaction fees and faster Ethereum transactions.

How Does Raiden Network Work?

The Raiden Network uses bi-directional payment channels enabling users to send transactions without a global consensus. To work, Raiden Network parties must collateralize their off-chain transactions with on-chain deposits needed for opening a payment channel. Once the bi-directional payment channel is live, users can transfer funds between each other only until the total value of the transfer exceeds the initial on-chain deposit.

The overall goal of these systems is to prevent blockchain transaction bottlenecks. Such bottlenecks give room for transaction fee hikes. Raiden Network facilitates the secure transfer of value off-chain. The off-chain transactions are automatic and transparent, and there is no concern about off-chain manipulation. Scaling solutions like Raiden allow blockchains to actualize their true blockchain. Ethereum’s ability to be at the center of the enterprise blockchain world depends on its ability to facilitate fast and low-cost transactions.

Raiden has a number of advantages. It adds an extra layer of privacy to transactions for participants. Its definite edge, nonetheless, is the lightning-fast transactions the network provides for users. The transactions are just as valid as those on Ethereum but achieve confirmation within seconds. Users also enjoy excellent transaction fees, which is perfect for micro-transactions.

Raiden Network Use Cases

The Raiden Network provides API Access for developers, enables micropayment, and can be used by decentralized exchanges. The protocol’s developers find their niche in an increasingly competitive world with superior layer-2 options.

Still, Raiden Network as a scaling solution finds adoption challenging due to the emergence of more advanced layer-2 solutions such as Rollups.