The Ridden Network recently announced it has deployed the bug bounty version of Micro Raiden on the Ethereum network. Synechron associate partner Matt Shaw explains its significance.
This is an exciting development in the world of distributed ledgers and global payments. The Raiden network uses off-chain transactions in order to provide improved scalability, settlement speed and privacy for global payments, whilst using the public Etherium blockchain as an immutable ledger for settling netted transaction balances.
In order to do this Raiden have had to build their own secure, crypto-graphic payments and smart contract network since they are avoiding the financial and performance costs of using Etherium for the main value-transfer, bi-lateral consensus and non-repudiation features.
The Etherium network is only used as a distributed settlement platform for the ‘final hop’ of each transaction group providing immutable ‘global consensus’ and audit trail on net outcomes.
Payment channel solutions also require an on-chain escrow deposit (i.e. trust enhancing collateral) before channels can be opened – this ties up liquidity and funding, undermining the benefits of this technology for some use cases (e.g. large scale payment agents).
The firm also provides Micro Raiden – an out-of-the-box, simplified implementation of the Raiden network aimed at driving automated, uni-directional, micro-payments to serve the Internet of Things. This is also very timely for ‘pay per use’, machine-to-machine and auto-replenishment IoT use cases.
Such off-chain ‘payment channel’ solutions are one option being explored to provide scalable and private transactions over a public blockchain. There are of course other solution options being used to achieve similar outcomes:
Private DLTs such as r3 Corda provide ‘bi-lateral’ consensus and data diffusion as an on-chain feature with native smart contract execution. Having built so much of this themselves one might ask why Raiden decided to use Etherium as the settlement platform for the ‘final hop’ of each transaction – I presume it’s because Etherium allows them to make their platform publicly available, offering the fastest route to adoption network effects.
And other Etherium initiatives are seeking to create private bi-lateral channels directly on the Etherium blockchain using zero-knowledge proofs and other cryptographic innovations – these have the advantage that smart-contracts can be self-enforcing and deterministic leveraging one of Etherium’s key design features.
But what we know from the (failed) Etherium DAO experiment such contract immutability also has downsides.
The challenge for Raiden is to demonstrate to users how their hash-locked transfers, balance proofs and smart contracts are secured outside of the Etherium network so they can build systemic trust in their platform.