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The Raiden Network is an infrastructure improvement to Ethereum, a layer on top of the Ethereum core. It allows secure transfer of value without involving blockchain. This is made possible by leveraging a network of payment channels. It works in a similar way as Bitcoin’s Lighting Network
Payment channel is an agreement between two participants where the sender sets up a deposit of tokens on the blockchain for the receiver. The payment takes place off-chain by digitally signing the transfer for value and hash locking transactions which is called balance proofs. Balance proof is a binding agreement enforced by the Ethereum blockchain. Digital signatures ensures both parties are unable to back out of the value transfer, as long as one of them presents it to the blockchain.
This is fully collateralized by the previous setup on the blockchain deposits. The receiver can take the value at any time by simply using a smart contract which will verify the last signed transaction and release payment.
Payment channels can be connected to a network where payment channels connect all participates. This allows participants to transfer within the network, without having a direct channel with each other. This also lets participants transfer independently and simultaneously, without involving global consensus as it is in conventional transfers on blockchain. This allows the system to scale participation. With greater levels of participation, more transfers can occur simultaneously.
Transfer between participants can be done bidirectionally and infinitely as long as they do not exceed their deposited tokens. These instant transfers use blockchain to create a payment channel and for closing off the channel. The rest of the transaction is off-chain on the Raiden Network for Ethereum tokens.
Creating network channels between peers is infeasible. Instead, a connection between payer and payee is adequate. If there is one route through a network that connects the two participants, transfer of value is eligible, making routing and interlocking channels possible.
The Raiden Network is perceived as the saviour to Ethereum’s scaling problems, a much needed improvement with an aggressive timeline…