It seems Ethereum might beat Bitcoin to the scaling punch as it’s long-awaited Raiden protocol has been activated on one of the Ethereum platform’s Testnets. Raiden is expected to increase transaction throughputs by enabling micropayments, lower fees, and near to instant settlements. Raiden works, theoretically, in a similar way to Bitcoin’s Lightning Network by moving the bulk of transactions off-chain for faster processing. Testing has been going on since the announcement on September 5th and you can track development progress on Github.
Unlike the Lightning Network, which is an independent project to the Bitcoin Blockchain. The Raiden Network’s off-chain transactions, which are processed on “state channels,” are developed from Ethereum’s Executable Distributed Code Contracts (EDCCs or smart contracts). Raiden will facilitate the transactions by utilizing its own nodes, running alongside Ethereum nodes, to communicate with other Raiden nodes.
To quote Vitalik Buterin “State channels are an important technology that has the potential to greatly improve the scalability and privacy of many categories of blockchain applications; in conjunction with sharding and other privacy-preserving cryptographic technologies, they are an important ingredient in helping decentralized systems to achieve the properties that mainstream individual and institutional users expect and deserve.”
“the basic idea is to switch from a model where all transactions hit the shared ledger on the blockchain (which is the bottleneck) to a model where users can privately exchange messages which sign the transfer of value.” as the Raiden website states.
Scalability is a key factor to the mainstream adoption of Blockchain technology, Ethereum’s promise is linked to the fact that it was designed with scalability in mind. Ethereum developers have put forward many ideas for how to scale the platform, but none have been able to circumvent the technical limits imposed by blockchain data structures and architecture yet. The Raiden payment network looks as though it may be the one to carry the team to the finals though, as it could potentially allow for millions of transactions per second (far outstripping the Ripple payment rail)
As more and more users enter the Ethereum ecosystem, transacting and launching ICO’s and what have you, the bloated number of transactions can create backlogs of pending transactions, and making the network sluggish. Raiden solves this problem by removing reliance on miners and block times for transaction throughput. Raiden should be implemented sometime during October, according to the rumour mill.