The core aim of the very first decentralized cryptocurrency – Bitcoin indeed – was to enhance peer-to-peer payments. The very first line of Bitcoin’s infamous white paper says “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” However, the current blockchains aren’t scalable enough for the technology to be widely adopted in the payments industry because of their “global consensus” bottleneck. Ethereum’s blockchain currently supports about 15 transactions per second, which is way less than the centralised payments apps we use today.
Raiden aims to bring blockchain based payments to the masses by making asset transfers much more scalable and thus cheaper. Faster transactions also mean wider adoption. As stated on the official Raiden website, their focus is to enable “near-instant, low-fee and scalable payments.” This network is an off-chain solution whose goal is to “research state channel technology, define protocols and develop reference implementations.” Raiden basically wants to push the payments industry forward by enabling instant payments, especially micro payments.
State channel technology will allow the creation of payment channels via which value can be transferred privately, i.e., without getting reflected on the blockchain. This doesn’t make Raiden less secure – as the creation and exhaustion of such a payment channel is registered on the blockchain. A typical payment channel is created between two parties when both deposit a certain amount of value from which they can withdraw money as per their wish. This is similar to joint accounts people create in banks. The deposit of value is recorded on the blockchain, and thereafter the two parties can transfer assets between themselves indefinitely as long as the amount of a single transfer doesn’t exceed the original value each party deposited. Once these intermediate transfers are over, the net transfer value from one party to the other is then registered on the blockchain. These transfers aren’t registered on the blockchain and are thus faster and indeed, private. Speed and privacy are among the core values Raiden advocates for. Other values include interoperability, low fees and growth of the upcoming micropayments industry. Raiden is said to work with any token that follows Ethereum’s standardised token API, i.e., ERC20. This allows it to be interoperable with multiple blockchains. Also, payment channels allow for transfer fees that can potentially be orders of magnitude lower than on the global blockchain. Low transaction fees will allow efficient transfer of tiny values, thereby making micropayments more feasible.
Some of the aspects of Raiden mentioned above resemble that of Bitcoin’s Lighting Network, and rightly so – Raiden officially claims that it is “Ethereum’s version of Bitcoin’s Lightning Network, enabling near-instant, low-fee, scalable, and privacy-preserving payments.” Speaking of payments, that’s what Raiden aims to be really good at. The site mentions that its efforts will be especially useful in developing countries, where they can improve the life of millions. It wants to improve the blockchain-based payments services in such a way that they preserve the private and decentralised nature of cash while updating its user experience to the expectations of the public. Since blockchains are a hot candidate to be at the core of the upcoming “machine-to-machine” economy, reducing payments fees will result in increased adoption of blockchain technology and new use cases will emerge. The official site suggests some possibilities – if blockchain-based payments are blazing-fast and cheap (which Raiden aims to do), the technology can be used to make fine-grained payments for developer APIs (which are essentially programmatic services provided to programmers by other programmers), paying for subscription services like Spotify, and for buying fine-tuned computing power on the cloud (like Google’s Cloud Platform and Microsoft Azure). If Raiden is successful in establishing such a payment convenience, then you can possibly create new and novel ways to monetize resources. You can, for example, create a service, which allows people who pass by your house to use your Wi-Fi bandwidth and pay you on a per-megabyte basis.
So Raiden seems to open a whole new and exciting field of micropayment, where potentially everyone benefits, but it’s important to remember that it is still a work in progress. Their team works hard and regularly contributes to the codebase, so we hopefully have to wait just for a little while to see what they accomplish when they finally ship it.
Saurabh Chaturvedi is a freelance developer and technical writer with a keen interest in blockchain, Bitcoin, and other cryptocurrencies.
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