An off-chain scaling solution aiming to enable near-instant, low-fee and scalable payments on the Ethereum blockchain, similar to Bitcoin's proposed Lightning Network.
The Raiden Network is a scaling layer built on top of the Ethereum blockchain. It allows users to initiate fast and low-cost transactions. The network interacts with tokens built using Ethereum’s ERC-20 standards. In other words, it is similar to Bitcoin’s Lightning Network. Raiden differs in operation from its main chain because it doesn’t require global consensus.
However, to preserve the integrity of transactions, Raiden powers token transfers using digital signatures and hash-locks. Referred to as balance proofs, this type of token exchange uses payment channels. These channels allow Raiden to facilitate bidirectional transfer between two participants without the intervention of the underlying blockchain.
Note that balance proofs on the Raiden Network are monitored by the main chain, and they act as binding contracts. Apart from bi-directional payment channels, the Raiden Network is characterized by the presence of mediated transfers and routing.
Mediated transfers happen when a token transfer between two participants goes through other users. This occurs when there’s no open peer-to-peer channel. Routing, on the other hand, is responsible for facilitating mediated transfers through multiple nodes.
Being an off-chain or layer two scaling solution for Ethereum, the Raiden Network makes it economically feasible to transfer small amounts of ERC20-based tokens. This is made possible by removing the high transaction fees incurred when directly interacting with the Ethereum blockchain.
Another advantage of the Raiden Network is its increased privacy compared to when sending coins on-chain. The protocol can be used to facilitate instant token swaps, micropayments, and retail payments.