Understanding the Raiden Network
The Raiden Network is a scalability layer built on top of the Ethereum blockchain that allows for fast and cost-effective transactions. It operates similarly to Bitcoin’s Lightning Network but differs from the main Ethereum chain as it does not require global consensus.
To ensure transaction security, the Raiden Network uses digital signatures and hash-locks for token transfers. These transfers, called balance proofs, are facilitated through payment channels, enabling bidirectional transfers between participants without the need for the underlying blockchain.
Balance proofs on the Raiden Network are monitored by the main Ethereum chain and serve as binding contracts. In addition to bidirectional payment channels, the Raiden Network supports mediated transfers and routing.
Mediated transfers occur when token transfers between participants are facilitated through other users, typically when no open peer-to-peer channel is available. Routing enables mediated transfers through multiple nodes.
As a second-layer scaling solution for Ethereum, the Raiden Network makes it economically viable to transfer small amounts of ERC20-based tokens by eliminating high transaction fees associated with direct interaction on the Ethereum blockchain.
The Raiden Network also offers enhanced privacy compared to on-chain coin transfers and can be used for instant token swaps, micropayments, and retail payments.
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