Ethereum Raiden Scaling Solution
Raiden Network Review
Due to their restricted capacity, blockchain offers a wide range of killer applications for payments that do not support worldwide adoption. The scalability issue that is now slowing down the network is due to a lack of block size, hefty fees, and time-consuming confirmation.
In terms of scalability and solutions, there is no scarcity of publications discussing this element of blockchain technology. As a result, we've enlisted the help of our specialists to share their knowledge on the subject. Read and take notes.
In comparison to Ethereum, the Bitcoin network can handle significantly fewer transactions: one transaction per ten minutes, resulting in massive queues of transactions awaiting confirmation. The Ethereum network can currently process one block in twenty seconds. Although this appears to be a small period of time, it is insufficient for adoption as a daily payment platform. If widespread adoption occurs, the network will have to handle hundreds of thousands of transactions per second. Furthermore, various additional aspects, such as transaction cost and confirmation time, must be resolved before everyday payments on the blockchain may be adopted.
Cost of a Transaction
When a node transmits a transaction to a pool, the system determines how much gas (transaction cost) the user must pay in order for the transaction to be confirmed. In order to gain faster confirmation, the node may also increase gas. Transactions having a greater gas fee are first on the list to be processed. As a result, for nodes that cannot afford to pay more gas, it finally becomes a matter of time.
Time for Confirmation
Any blockchain network's capacity is currently limited since nodes must first mine a block by solving a mathematical challenge before they can confirm transactions in it. The community can only confirm transactions in this block when one of the nodes has solved the riddle. The transaction is added to the distributed ledger as soon as it is validated. All of these processes take time, and the journey from transaction to confirmation can take several days in some cases. Of course, the confirmation time is determined by the availability of gas. If a block's gas is below average, no miner will process it; gas is the miner's profit.
Solution for Scalability
Users can pick from a variety of choices, including soft forks like SegWit and hard forks like SegWit2z. The Lightning Network, Plasma, Plasma Cash, and the Raiden Network are the following networks. Cryptoauxiliary can provide you a complete view of what each solution has to offer the market.
SegWit and SegWit2x
SegWit and SegWit2x are two different types of SegWit. When the crypto world was debating the scalability issue and the opportunities that increased block size would offer in 2016, the Segregated Witness solution for Bitcoin came along. SegWit proposed moving the signature to the end of the transaction code, which would cut the transaction's size in half and reload the network. SegWit allows for a block size increase of up to 2MB, whereas SegWit2x suggested a block size increase of up to 4MB.
However, none of the alternatives were approved by the community in the end.
Network of Lightning
All scaling solutions seek to reload the list of transactions awaiting confirmation, and Bitcoin Lightning is no exception. This is an off-chain network that allows nodes to create direct-payment channels for inexpensive, quick transactions.
To establish a payment channel between two nodes, they must each contribute an equal amount of money to a multi-signature wallet. This total will be used to determine the maximum sum that can be transmitted using this channel. The following are the Lightning Network's most significant benefits:
there isn't a transaction fee
Transactions do not need to be confirmed by the network.
As a result, transactions are both free and quick. Furthermore, nodes can receive their money back if they opt to shut their channel.
The only scenario in which a fee is required is when creating a network within Bitcoin Lightning. If A and B have a direct payment channel open, and B also has a channel open with C, A does not need to start a new channel to pay C. For a price, A can request that B send money to C.
The network's security is secured by the fact that no one can leave the channel without mutual consent. As a result, no one can leave and/or steal a donation without the consent of the other party.
Except for the opening transactions that nodes make while creating their channel, none of the transactions made between nodes on Lightning are shared with the blockchain.
The Bitcoin Lightning Network is ideal for parties with a financial relationship who need to pay each other frequently and want low-cost, on-time transactions. The Lightning Network, on the other hand, is limited to the Bitcoin Blockchain.
The Bitcoin network isn't the only one attempting to address the issue of scalability. Ethereum is also unable to compete with payment systems such as Visa, Mastercard, and Paypal. It is, however, complemented by a Lightning Network analogy: Plasma.
Unlike Bitcoin, the Ethereum network's scale can be increased by using Proof-of-Stake Casper and sharding (these aren't the only options), which were only adopted a year ago.
On November 9, Vitalik Buterin and one of the Lightning Network's core developers released the Plasma white paper, which is a Lightning algorithm implementation on Ethereum.
Ethereum is a network in which smart contracts operate as "lawyers," regulating financial transactions between nodes. In Plasma, the transaction sum is governed by a smart contract, similar to the Lightning Network, where input is used to open the channel that controls the total that can be communicated within the channel.
Furthermore, the Lightning Network provides privacy by preventing users from leaving the channel without the permission of the other party. Meanwhile, because everything in Plasma is regulated by a smart contract, a node can leave the channel at any time without requiring consent.
Plasma enables tokens to be sent rapidly and securely without the need for transaction verification. The technology refers to off-chain channels that are not maintained by the Blockchain network and are governed by Ethereum smart contracts (Balance blockchain model). Bitcoin, on the other hand, uses a UTXO blockchain model (Unspent Transaction Output).
UTXO vs. Balance in Blockchain Models
UTXO and Balance are two different techniques to money transfer, despite the fact that they are both employed on different blockchains.
The UTXO model is a difficult concept. The number of Bitcoins in a wallet is referred to as a UTXO. To send one Bitcoin, the sender must send his or her UTXO, and the receiver must return the change. Let's look at an example of a UTXO transaction to help clarify things:
Node A has three Bitcoins in their wallet and would like to send one of them to node B.
Node A unlocks the UTXO and inserts it into the transaction as is.
When node B receives the transaction, one Bitcoin is added to his or her wallet, and B returns two Bitcoins as change.
With the other side, on Ethereum, there is an account/balance mechanism that does not require staking a balance to make a transaction. The balance model ensures that A's balance is equal to or greater than the amount of money he or she wishes to send to node B.
If node A has three Bitcoins and wants to transmit one to node B, the system will deduct one BTC from A's wallet and add one BTC to B's wallet.
The UTXO and Balance blockchain models are compatible with both cash and credit card payments. When you buy bread and give the clerk a five-dollar bill for three dollars worth of bread, you will receive two dollars in change. The UTXO model is similar to this.
When you use your credit card to pay for a taxi, the system deducts the required amount from your wallet. The only prerequisite is that you have an amount on your card equal to or greater than the cab fare: the Account/Balance model.
The Ethereum network currently has a size of about 400 GB and is constantly expanding. Because the ledger is distributed, this has scalability implications.
You generate a non-fungible token with its value in Ether or ERC20 tokens when you construct a sidechain on Ethereum based on the Plasma Cash algorithm. The value of your token should not be exceeded by transactions on the sidechain. A smart contract ensures that everything is carried out in accordance with the agreed-upon agreement.
The key distinction between Plasma and Plasma Cash is that in Plasma, users must download each block individually, posing significant scalability issues. To address this, Vitalik Buterin and Joseph Poon, co-founder of the Lightning Network, have introduced Plasma Cash, which simply asks the user to keep track of the blocks containing the currency he or she is interested in.
While Plasma is profitable when making regular micropayments, Plasma Cash is utilised for businesses who need to send transactions within the sidechain but don't want to use the mainchain. A casino is a good comparison for the Plasma Cash philosophy of work: you buy chips (tokens) to play with, and you either win and gain additional chips, or you lose. You change your chips back into money when you want to quit playing (leave the sidechain) (Ether).
Each of the projects listed above has worked out how to solve the Ethereum network's scalability problem. Plasma allows for the creation of direct payment channels and the execution of quick, low-cost transactions; nevertheless, each node must download each block. Participants in the Plasma Cash sidechain are not required to download each block. Instead, they keep track of the blocks that attract them. As a result, transactions are quick and inexpensive, and the ledger isn't overly large.
While Plasma Cash uses smart contracts to manage token transactions within the network, the Raiden Network uses a smart contract that allows sidechains to process public smart contracts due to Ethereum's public blockchain being overburdened. The sidechain has adequate processing capacity to process a public smart contract and return the value to the public blockchain.
The list of blocks waiting for confirmation on the public blockchain is shortened by borrowing computational power from sidechains. Sharding is the term for this phenomenon. To put it another way, every Ethereum subnetwork can borrow processing power from another subnetwork for a charge.
Under the Hood of the Raiden Network
Because Raiden does not yet have a white paper to refer to, Cryptoauxiliary will provide a comprehensive overview of how Raiden works and the advantages it provides.
Raiden's purpose is to change the consensus on the blockchain. This is made feasible by utilising the payment channel network, which enables for secure off-chain transfer of ERC20 tokens without the need to register each transaction on the public blockchain.
The Raiden network is a state channel-based scalability solution that is only getting started. We'll follow up with a state channel description to acquire a better understanding of what Raiden actually works.
A state channel is a free-of-charge connection between two nodes that allows them to send transactions almost immediately. Escrow, which opens the channel and is controlled by a smart contract, is the sole input the nodes provide. The most notable feature is that transactions take place off-chain, and nodes are not required to disclose every action to the public blockchain (in our case, Ethereum).
What Is the Payment Channel and How Does It Work?
In Raiden, a payment channel is an agreement between two nodes in which the sender places a token deposit on the blockchain for the receiver. Off-chain payments are made using privately transmitted messages that digitally transfer the value. A smart contract verifies the transaction, signs it, and settles the claims.
Channels can also be used to create a network that allows payments to be made between nodes that do not have direct payment channels. Several payments can be made at the same time without the requirement for worldwide agreement on each one. Raiden's money transfers are quick and don't cost any gas. Because of the off-chain implementation, this is possible.
Nodes that open a payment channel between themselves generate escrow, which defines the channel's capacity. If the capacity is five BTC, for example, node A can only send five Bitcoins to node B. The channel, however, can be rebalanced if it is bi-directional.
Smart Contracts and the Raiden Network
Let's pretend there are two sidechains that want to collaborate and share information or send transactions to one another. They can obviously form a partnership between two nodes on the public blockchain, but each transaction will take time and cost money. Building sidechains and taking advantage of quick payments is the way out. Furthermore, with Raiden's support, these sidechains can interact financially without having to report to the public blockchain.
The Raiden network has the advantage of allowing sidechains to transact in both ETH and ERC20 tokens. Regardless of what the sidechains desire to convey, the receiving party will not accept it unless it is confirmed by a native smart contract. To acquire confirmation, the sender performs the function "call," and when both sidechains support one smart contract, the sender can take advantage of all of Raiden's capabilities.
Roadmap for Raiden
Although the Raiden Network does not yet have a white paper, it does have a roadmap available on its website.
Unless transactions grow faster, cheaper, and need less processing power, the Ethereum blockchain is unlikely to become a widely used cryptocurrency payment system. The Raiden network provides a solution to each of the issues listed above, as well as having even more potential in its own right.
For quick, many-to-one, low-cost ERC20-token transactions, the network has so far used the Raiden (mini Raiden) network. Other technologies are being developed by the project's developers:
The opening, closing, and settling of channels. Users can connect with other users in Raiden even if they don't have a direct payment channel with them. These types of transactions will be near-instantaneous and will be subject to a small fee.
REST API stands for "Representational State Transfer." On top of the Raiden Network, developers will be able to create decentralised applications (dApps).
Recoverability. This feature protects the channel from data loss if a node fails.
Raiden Eyes that are red. The Mainnet edition of Red Eyes will include a bug-fixing system as well as user input. There will also be safety limits in place: The maximum escrow value specified in the smart contract is 250ETH, and the maximum deposit for the node/direction is 0.5ETH.
The Raiden development team is planning to introduce the following features in the future:
Withdraw the channel. Users who have created a payment channel will be able to withdraw payments without having to close the channel.
Token swaps that are atomic. This function allows for the creation of a decentralised exchange based on state channels.
On the Raiden network/official system's website, you can discover a complete list of functions that will be introduced.
Token of the Raiden Network
Even though it works with both ETH and ERC20 tokens, the Raiden project has its own native currency (RDN), unlike Plasma (which works with Eth) and the Lightning Network (which works with BTC).
Ethereum nodes may already utilise the RDN token to make micropayments on Raiden. The total supply of RDN tokens is initially 100,000,000,000.
According to the most recent Cryptolization report, the total market value of the RDN token is $212,132,167,873 U.S. dollars.
The current price of Raiden Network tokens is $0.484789 US dollars, according to Binance.
Advantages of the Raiden Network
Raiden, among other blockchain scaling solutions, has a broad range of capabilities that enterprises will find useful:
It's time to transact. While on-chain transactions are queued for validation and consumers may have to wait days for someone to mine the block, no transactions in an off-chain network require validation. This is a direct channel established between two nodes in which they sign an agreement (smart contract) ensuring that all actions are trustworthy.
Fees for transactions. Of course, a node can increase the gas he or she sets for a transaction to speed up the verification process, but this makes money transfers on the blockchain more expensive. Fortunately, thanks to Vitalik Buterin and Joseph Poon, who addressed the fees issue with scaling solutions like Plasma, Plasma Cash, and Raiden, blockchain as a payment system is not doomed. In off-chain networks, users now only contribute when they open a payment channel that does not charge a fee.
Capacity. The capacity of the Ethereum and Bitcoin networks, for example, is fixed. The Raiden Network, on the other hand, grows in a linear pattern in proportion to the number of users in the network.
Privacy. By default, blockchain is a distributed ledger in which each node keeps track of all transactions ever made on the public blockchain. This may create a privacy risk for businesses that store confidential data on the distributed ledger. As a result, building sidechains is advocated as a solution.
Advantages of the Raiden Network
What Challenges Does Raiden Have to Face?
Blockchain is a relatively new technology that is constantly evolving and improving. However, any invention that solves one problem encounters two additional problems along the way. Let's take a look at the Raiden Network's problems:
Tokens that have been locked away. To setup the payment channel, both participants must have a specified number of tokens in their wallets. These tokens will be locked until the channel is closed; otherwise, nodes will be unable to create a direct payment channel. Furthermore, opening multiple direct payment channels becomes expensive since the node must store additional tokens. On the other hand, because node A can deliver tokens to node C through node B, there is no need to start several channels (of course, paying a certain fee).
Micropayments. As a result of the deposit that nodes must make in order to start a channel, they limit the number of tokens that can be communicated within the channel. As a result, heavy transactions must be conducted on the public blockchain.
Let's say node A and node B started a channel and each contributed one ETH. This signifies that the channel has a two-ETH capacity. Node A can transmit B a hundred transactions if the channel is unidirectional, but the total amount should not exceed the two ETH provided. If the channel is bi-directional, however, A and B can rebalance each other and transmit an infinite number of transactions as long as the transaction's total assets are less than or equal to the escrow.
Since its release, the Ethereum community has been waiting for Raiden to be adopted onto the network. It shouldn't have to wait much longer, since the Raiden development team is close to completing the technology's testing. Furthermore, a Raiden Network prototype is already available: Raiden.
The thing that makes Lightning, Plasma, Plasma Cash, and Raiden so perplexing is how they differ from one another. Let's start with the fact that Lightning is based on Bitcoin and enables for the creation of direct payment channels while reducing transaction time and cost.
Plasma and Raiden are quite similar to Lightning, although Plasma only works with ETH, whilst Raiden allows users to use both ETH and ERC20 tokens.
Raiden stands out among other scaling options because of its sharding capability, which allows sidechains to send smart contracts to another sidechain for processing.
Plasma Cash, which works with both ETH and ERC20 tokens, is another technology that solves Ethereum scalability and helps unload the network. This technique allows users to send tokens from the public blockchain to the sidechain for a significant profit due to incredibly cheap fees.
Please contact the Cryptoauxiliary team for further information if your company needs to deploy any of the above-mentioned technologies.