ICO Analysis: Raiden Network

Scalability In Ethereum

The limitations of Ethereum and other blockchains have been a subject of discussion within the developer community for a while now. Like every other blockchain, Ethereum intends to support as many users as it can. At present Ethereum can support only 13 transactions per second. To give you a perspective of things, Visa processes an average 4,000 transactions per second, while Facebook handles about 170,000 requests per second. This shows that the mainstream adoption of Ethereum is still far away.

Efforts are underway to increase the scale of Ethereum, both on The chain and off the chain. On chain scaling efforts involve making improvements in the fundamental structure of blockchain like shifting from proof of work to proof of stake, sharding, increasing gas limit, etc. The author believes that on chain efforts to improve scalability will never result in achieving the desired scale and there is an urgent need to develop off chain solutions. Raiden Network is one of Ethereum’s most highly anticipated scaling projects which proposes an off chain solution for Ethereum scalability.

Raiden Network

The Raiden Network is an off-chain scaling solution for performing ERC20-compliant token transfers on the Ethereum blockchain. It is Ethereum’s version of Bitcoin’s Lightning Network, enabling near-instant, low-fee, scalable, and privacy-preserving payments.

Ethereum is impractical for instant payment solutions due to the minimum 15 second average block time present on the network. When a transaction is being conduction on the blockchain, it has to be confirmed by a global network (i.e every participant on the network has to agree to it). Raiden proposes an off the chain solution where every transaction does not need to be agreed globally as long as the participating parties agree to it. The transaction is broadcasted on the blockchain only during the final settlement.

Raiden is developing state channel technology which is built on top of Ethereum. Suppose A and B want to transact with each other. They will open an off chain payment channel between them and deploy a smart contract on Ethereum, which conveys the same to the blockchain. Both parties make a security deposit in the smart contract. Suppose A wants to send 3 tokens to B. A signs the message “3” and sends it to B. B now has the proof of receiving 3 tokens from A. In another transaction A sends 4 tokens to B in a message signed “7”. Note that a message “7” is sent in this transaction since only the current state of the channel is saved, which means that the message will convey information about the previous 3 token transaction as well as the current one. Once B wants to spend the tokens received from A, he will go on chain and ask to settle the transaction and close the payment channel. B will receive his 7 tokens from the deposit and only the final settlement amount which is 7 is relayed on the blockchain.

The payment channels between users are one-to-one. However, all transacting parties need not have a direct one-to-one channel with each other. Channels can be linked together to form a network, so users can pay anyone within the network.

The end users do not have to manually look for participants to open a channel with or a path to route the transfer through. The participants will only need to open a software client and tell it the amount of tokens they want to deposit – the amount of tokens they are willing to use on the network.

The protocol currently supports only ERC-20 compatible tokens.

Token And Crowdraise

The token is not a necessity at the core protocol level. Opening or closing payment channels, joining the network and sending transfers do not involve RDN at the protocol level. However, the tokens can be used to improve and increase the user experience. For example there will be auxiliary helper service providers on the network who would assist with finding a path with sufficient capacity or services that provide channel monitoring services for offline users. Most users will be happy to provide some network fees in the form of RDN to third party services and not running the full stack of services themselves.

The ICO of Raiden has created some controversy in the cryptocurrency community. There are many critics of the move including Vitalik Buterin who has questioned the need for an Ethereum protocol to have its own ICO.
The crowdsale will begin on 18 October. A Dutch auction will be conducted for the crowdraise to reduce the hype and speculation. The total supply of the tokens will be 100 million RDN with 50% to be distributed amongst the ICO participants.

The Team

Raiden is being developed by Brainbot Technologies. Along with Riaden, Brainbot is working on a few other projects like Hydrachain, Trustless Network and also Ethereum core development. There are many developers working on the project.

Heiko Hees is the founder & CEO. He has been the core developer of Ethereum since March 2014. In an interview with Huffington Post Heiko Hees was quoted:

Basically all blockchain based applications that want to scale to real world usage will benefit from Raiden. It can be used for applications like asset trading in gaming or finance, retail payments, micropayments for content (think the next YouTube or Spotify where creators are directly paid for every second consumed). But it’s also suitable as an infrastructure for cheaper, faster and more secure correspondent banking.

Verdict

Raiden has been one of the most highly anticipated value addition to the Ethereum Network. Despite the launch being delayed since March 2017, there is a lot of excitement about the project and its implications on the Ethereum Network. Many Ethereum users will be willing to pay a small fees to access the Raiden Network. It is one of the few blockchain based project which will have hundreds of thousands of users as soon as it is launched.

We feel the controversy surrounding this ICO is unnecessary. A properly funded and incentivised organisation is better positioned to deliver and drive adoption, than a development team living off donations. The project will definitely scale and gain value, it all boils down to whether you think Ethereum will stay relevant going ahead in the future.

Risks

  • The project was supposed to be launched in March 2017. The launch date for Raiden has not been released yet. -2
  • The tokens will be used as an internal medium of exchange. This model does not seem feasible in a project like Raiden where the tokens are an option and not a necessity. A better model would have been using the proceeds from the network fees to burn the tokens. We reduce some points over the economic viability of the RDN tokens. -2
  • Ethereum Network itself might solve the issue of scalability and provide the solution for free. -1

Growth Potential

  • Scalability is the biggest issue that Ethereum faces at the moment. Right now Ethereum can support only basic smart contract based applications. Once scalability is achieved Ethereum can support many other use cases, which will help expand the blockchain. As Ethereum grows, so does Raiden. +6
  • Raiden will have users on the network as soon as it is launched. +3
  • Raiden Network promises a throughput of a million transactions per second which is more than enough for any existing traditional application. +3

Disposition

We arrive at a score of +7 for Raiden. The score seems justified for a project which will lead to a faster mainstream adoption of Ethereum blockchain.

Investment Details

The ICO begins on October 18, 2017 around 3 p.m. UTC. The ICO will follow the Dutch auction process. Since the token usage is not a necessity to access the network, the token value should be low. It is advisable to wait for the price to come down before buying. Please refer to this blog post to get more details.

Author:
Aakash Kawale is a financial analyst based out of Mumbai, India. He is the lead analyst at a Singapore based organization and has extensive experience of analyzing US and Indian equities. Aakash is a strong advocate of the Blockchain technology and has been analyzing cryptocurrencies since 2015.