What is the Raiden Network and How Will it Affect Ethereum?
The Raiden Network is a proposed scaling solution for Ethereum. Many people believe that Ethereum needs to be scaled if it is going to reach mainstream acceptance as a currency that people can actually use on a daily basis for transactions. Ethereum is currently used by a lot of people in the tech world regularly, however, you are unlikely to see anyone paying for things like gasoline or chocolate bars with Ethereum anytime soon.
This is partly because compared to payment methods like VISA, Ethereum transactions are currently slow and cumbersome. VISA is very fast and efficient, despite the fact that it relies primarily on fiat currencies, which some cryptocurrency supporters believe are on the way out due to their inflationary risks.
A Closer Look at Ethereum’s Problem
Currently, the Ethereum network can process about 15 transactions per second. You may think that is fast, but VISA can process thousands of transactions per second and does so very frequently. Ethereum is still much faster than Bitcoin, which can only process about 4-7 transactions per second. Despite this fact that Ethereum is faster than some of the top cryptocurrencies, it is still very slow compared to the credit and debit cards of the modern era.
This is a major problem because many people want their transactions to be as fast as possible. That is why most people drive automobiles nowadays, instead of horse and buggies. Time is a valuable commodity, and most people do not like to waste it. Slow transaction speeds can also be a problem in business, and in trading, when time can be of the highest importance.
Essentially, Ethereum’s inability to be as fast as VISA and other similar payment systems is viewed by many to be a flaw in an otherwise brilliant technology. But, this flaw could soon be fixed.
How Does the Raiden Network Work?
It is said that for Ethereum to be widely adopted for everyday payments, it will have to be capable of processing 100,000 transactions per second, have low tx fees, and be able to complete transactions in a fraction of a second. The Raiden Network is the solution that is being proposed to help achieve all of these goals. If it is successful, then Ethereum could become a genuine everyday payment method.
The Raiden Network is an “off-chain” network that uses mesh payment channels, deposits, and cryptographic tricks to allow for token transfers to be completed securely. Because transactions taking place on the Raiden Network would not have to be recorded on the Ethereum blockchain, many more of them can occur at a much faster pace, and with lower fees.
With the Raiden Network, the Ethereum blockchain is still used, it is just not used to verify every individual transaction. It is used to verify, “netted claims which resulted from off-chain transfer activity.” So, essentially, the Raiden Network allows more transactions to occur per second without losing accuracy or security.
To understand how the Raiden Network works, imagine that there is a highway where cars can only travel .01 miles per hour. This represents the current Ethereum transaction validating process. It is slow, and gets backed up very quickly. Now, imagine that there are a series of roads running adjacent to that highway, where cars can travel at 100 miles per hour. This represents the Raiden network. Every now and again the highway connects to the roads.
Raiden Network Use Cases
Retail payments are one of the most obvious use cases for the Raiden Network. Ethereum has already built a reputation for being one of the best cryptocurrencies in terms of functionality. If the Raiden Network can solve the scaling problem, then it is highly likely that more and more retailers will start accepting Ethereum for payments. One day in the near future, when you go to buy clothes at the mall, there may be an option to pay with Ethereum or VISA.
Peer-to-peer cash is another use case for the Raiden Network. Once the Raiden Network is live, people will be able to easily send payments to one another seamlessly, efficiently, and with very low fees. This means that Ethereum will most likely become a great digital currency to use when family members need to send money to each other, or when friends need to reimburse each other after a restaurant bill was split unevenly, etc.
Micropayments are yet another use case for the Raiden Network. Micropayments are very small payments that are made between parties, oftentimes who are part of a network. Micropayments are frequently used in the internet of things and with DApps. They may also become very important in the near future for the machine-to-machine payment industry. As robots become more sophisticated, they participate in undergo financial transactions. Many of these transactions could potentially be carried out with Ethereum, on the Raiden Network.
Finally, the Raiden Network could potentially be used to build decentralized exchanges where cryptocurrencies can be easily exchange for one another using atomic swaps. This would be possibly because the Raiden Network contains an in-built atomic swap feature, which makes it possible for atomic swaps to be conducted on it. As cryptocurrencies start to be used more and more for commerce, this feature could prove to be very significant.
Raiden Network vs. Lightning Network
The Raiden Network is extremely similar to the so-called, “Lightning Network.” The Lightning Network is another proposed scaling solution for cryptocurrencies. However, the Lightning Network largely centers around Bitcoin. It is also designed to dramatically speed up transaction times, reduce fees, and allow for off-chain transactions, which are still connected to the blockchain at various stages in their lifecycles.
The biggest difference between the Raiden Network, and the Lightning Network is that the Lighting Network is only designed to do payment transfers. The Raiden Network on the other hand is designed to do things like run DApps. So, the argument can be made that the Raiden Network is the more useful of the two scaling solutions. However, Bitcoin is still the dominant cryptocurrency, and has a much larger market cap.
Current Status of the Raiden Network
The Raiden Network is currently still under development and has not been released to the public yet. It was initially designed to be released in March, 2017, however, that initial release date has been pushed back to April, 2017. The Raiden Network could be put into effect in just a few months’ time.
Will the Raiden Network Really Help Ethereum Scale?
It is said that with the Raiden Network implementation, the Ethereum network will be capable of processing around 1 million transactions per second. So, yes, if the team that is working on the Raiden Network can finish the product, and work out all of the bugs, then it can definitely solve the Ethereum scaling problem. In fact, it would be able to handle 60 million transactions per minute, or 600 million transactions in ten minutes. This means that if everyone in America wanted to make a transaction in Ethereum, all of these transactions could be easily processed in just a few minutes.
Challenges for the Raiden Network
The Raiden Nework faces several challenges. Because it is such a brand new technology, it will take time for people to understand and learn how to use it properly. So far, people have taken very well to cryptocurrencies, and those were a brand new technology only years ago, so the learning curve may be shorter than some may fear.
Another challenge that the Raiden Network faces is that there may be some unforeseen problems when the network goes live. Sometimes it is impossible to accurately anticipate every single problem before the product is launched. Hopefully, if such problems do occur, then there will be time to fix them before they create massive repercussions. But, the potential for unforeseen problems is definitely still there.
Government regulations are another thing that could potentially impact the success of the Raiden Network. That is not just American government regulations, but government regulations in every country in which the Raiden Network will be available in. Many governments have already outlawed or heavily regulated cryptocurrencies, including Ethereum. It is very possible that other governments could soon follow suit. This adds a certain amount of unpredictability to the cryptocurrency environment, and the Raiden Network exists in this environment.
It is difficult to say with certainty that every government that currently supports cryptocurrencies will welcome the Raiden Network. In fact, because the Raiden Network could significantly increase the efficiency and reliability of cryptocurrencies overall, this could cause bankers to pressure regulators to do away with cryptocurrencies once and for all in various nations. After all, cryptocurrencies are already providing significant competition to bankers. This competition could only get worse if cryptocurrencies become more efficient.
Final Thoughts on the Raiden Network
The Raiden Network has the potential to be an extremely crucial technological breakthrough for cryptocurrencies, and in particular, Ethereum. Because of the increased efficiency that the Raiden Network would bring to Ethereum, it is even possible that Ethereum could challenge Bitcoin for the top spot in the cryptocurrency world. However, it is also very likely that the Lightning Network will solve Bitcoin’s scaling problems as well.
Regardless of whether or not the Raiden Network causes Ethereum to replace Bitcoin as the top cryptocurrency by market cap, it is still going to have a major positive effect on the Ethereum Network. The fact that it will cause Ethereum payments to be dramatically more efficient than Visa’s is also extremely significant.
Faster transaction processing speeds will most likely cause many people to start viewing cryptocurrencies as a viable alternative to fiat-based credit cards and debit cards. Once people start making this realization, there is no telling how popular cryptocurrencies could become. Faster processing speeds was one of the only remaining advantages of fiat currencies over cryptocurrencies, so once that hurdle is leaped over, it could really change things.
The release of the Raiden Network is just months away, so all those who are curious about what will happen when it goes into effect won’t have to wait very long to find out.