Scaling, the endless cycle - and Raiden Network - P.2


If a blockchain wants to develop Off-chain solutions - the system needs On-chain updates to accommodate the necessary changes.

Scaling, the endless cycle - and Raiden Network - P.1

2. Blockchain scaling solutions

2.1. On-chain - an improvement from within

Recall the above - mentioned metaphor of the bus - the simplest way to transport more passengers is to use a bigger bus, expand the road, and produce more buses. Similarly, On-chain solutions focus on direct productivity enhancement of the whole system, bigger data blocks, SegWit solution, etc.

These solutions demand a direct transformation of the blockchain structure, which requires a unified consensus on the Ethereum or Bitcoin platform - this is highly demanding - but in exchange the spread of updates is certain.

2.2. Off-chain - an improvement from without

Different from the direct intervention of on-chain, off-chain solutions tend to enhance efficiency by utilizing available resources or generating side channels to relieve the main channels without transforming the state of the system. 3 of the most noteworthy off-chain solutions can be named as:

(1) Grouping - where multiple micro-transactions are grouped in one big payment, saving a lot of fees and times on multiple transactions.

(2) Side-chain - where instead of going on the main network, users can move their asset on an additional network for better processing.

And (3) Specialized transaction network - like Tipbots, Coinbase,etc.


But, it is important to note that even though Off-chain solutions do not directly alter the state of the blockchain- if we want to develop Off-chain solutions- the system needs On-chain updates to accommodate the necessary changes.

Currently, Sharding, SegWit, GHOST, Lightning, Raiden, and increasing the block size are the most prominent scaling solutions for Bitcoin’s blockchain and Ethereum’s blockchain.

In this paper, we will only focus on “Payment channel” solution which is applied by both the Lightning Network of Bitcoin and Raiden Network of Ethereum.

For those who have a serious interest in the development of Bitcoin, The Lightning Network is a solution that allows users to generate direct payment channel and mitigate micro-scale transactions with high volume on Bitcoin system. Especially, the Lightning Network has launched its beta on March 15th.

In this article, we will focus on the significance of the Raiden Network of Ethereum.

3. Payment Channel

Traditional blockchain’s payment solutions and data transporting operate by the same mechanism: after every individual transaction, the information will be reported to every member nodes, and the nodes will confirm the transactions. As mentioned before, this progress may be appropriate to a massive transaction, but mostly infeasible for minor payments such as paying for a cup of coffee.

Thus, comes in payment channels.

To simplify this solution: there are 2 individuals, A and B, they wish to settle multiple payments. Instead of connecting through blockchain and completing separated transactions, both of them will create a direct payment channel. Because the 2 accounts are directly connected, the transactions are expected to be settled immediately, instead of waiting for confirmation, which may take minutes or even hours.

You can consult the payment process as shown in the diagram below:

raiden network, blockchain, onchain, offchain, bitcoin, ethereum, lightning

The transaction channels will be governed by a smart-contract with MultiSig (multiple signatures) technology, which means that only when there is a consensus from both sides,  the new channel can be created.

In the beginning, the creation of the channel will still be reported to the blockchain, thus this procedure will help ascertain the transparency of the transaction.

In order to avoid double spending (The situation when A or B pays with the same coin  to a number of partners), participants are liable to transfer a chosen amount of money into the channel when they have signed the smart-contract and to create a payment channel - this sum of asset will be “locked” on the channel and only available to be drawn when the channel is closed.

The participants can only settle a payment equivalent to the sum of money they have locked in the channel. In the progress of maintaining the channel, the sum can be transferred back and forth multiple times. Normally, each of this transfers counts as a separate transaction, so normally it would be required to pay a fee every single time. But now, instead of reporting these transactions to the “public ledger” on the system, only A and B’s ledgers are updated, thus no fee, and no waiting. Therefore, no matter how many payments they make between themselves, the whole process will only require 2 connections with the blockchain - 1st when creating the payment channel; 2nd when closing the channel, thereby finalizing the total amount of money exchanged between the two parties.

A typical “transaction channel” may process as following:

A is a coffee shop owner, B is a regular customer. To optimize payments on a daily basis, they have created a transaction channel. B locks 0.5 ETH into the payment channel, A locks nothing (because he is the seller). So now, every time B gets a cup of coffee at A’s store, he will pay an established amount of his locked assets. Every payment is settled immediately as fast as using a credit card. When B’s credit limit is reached, or he merely switches to another store, the channel is closed and the “locked” amount of money is redistributed according to the data contained in both A and B’s ledgers.

 And wait, there is more twist on the Raiden Network.

(to be continued) 

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