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Ethereum has been struggling with scalability for a while. It is an essential factor that is holding back mass market adoption within cryptocurrency. The network is unable to manage high volumes of requests from users, which does not make it viable for the real world. An example of how Ethereum is not ready to scale into real-world applications is Cryptokitties crashing the network completely.
Raiden Network is the solution suggested to solve the scalability issues on Ethereum making it available for the mass market. Scalability is achieved through creating payment networks on-chain, while the digital signatures and hash locking happens off-chain. This also reduces cost of transfer. Routing and interlocking channels created via payment networks makes mutually dependent functions possible.
When payment channels are connected to the network, all payment channels connect the participants under one network. This further enables users that are not directly connected to transfer value via another user without compromising their security. This means the greater the number of participants, the more transactions will take place.
On the other hand, the network requires the user to lock a sum of tokens in a smart contract for the lifetime of the payment channel. Due to this, users are unable to lock up high values in a payment channel. This means that only small amounts of token transfers are possible. However, this helps in ensuring users are not overspending their deposits and that every user is paying their debt.
The Raiden Network protocol intends to facilitate the market by using both protocol-level features i.e. on-chain and optional auxiliary services off-chain.