Enter the Second Layer: uRaiden brings ultra-fast transactions to Ethereum
It took a playful game about kittens to illustrate just how far we are from Ethereum being a mainstream platform capable of handling serious volumes of transactions. In just a few days following its launch, CryptoKitties caused a huge backlog in Ethereum transactions, slowing down the whole network. From Dec 3 to Dec 6, the Ethereum pending transaction queue grew from ~2,000 to over 20,000, largely due to users buying, selling and breeding digital cats for fun and profit.
Scalability is widely considered a serious impediment to blockchain’s growth. “Global consensus” (each transaction must be accepted by each node on the network) means the speed of on-chain blockchain transactions remains relatively slow. Fred Ehrsam, co-founder of Coinbase, has said “Scalability will be the primary bottleneck for the industry for the foreseeable future” and that “Large apps can’t run solely on-chain and likely never will. They need off-chain scaling solutions.”
This off-chain “second layer” has been discussed for years but only recently has implementation been achieved. Nick Szabo, one of the legends in the cryptocurrency community, has said about the need for a 'second layer': “At scale, you can’t pay for coffee on a premium global blockchain. You’ll need a peripheral financial network that settles on that blockchain.” On October 30, Brainbot released uRaiden, the first “second layer”, off-chain transaction network for the Ethereum network (it also represents the first off-chain network for any major blockchain). uRaiden (or Micro Raiden) is capable of dramatically increasing the speed of Ethereum transactions, reducing transaction costs, and yes, even potentially keeping CryptoKitties from clogging the entire Ethereum network.
Why Ethereum Needs Off-chain
Today, Ethereum can handle ~20 transactions per second. In contrast, Visa can process up to 56,000 transactions per second. Ethereum has a long way to go to be a viable mainstream platform for transactions. Ethereum's scaling limitations are on full display now with the popularity of CryptoKitties.
The single application makes up 15% of Ethereum transactions and has caused significant delays in transaction processing. The ICO for SophiaTX had to be delayed due to concern over these lags. This is simply one application. Imagine how much the Ethereum network would slow down when there are dozens or hundreds of such applications.
Off-chain offers an answer to this problem. Off-chain transactions would begin on the Raiden network not on Ethereum, which means they would not be part of the primary blockchain processing. Two parties would agree to transact and communicate off the chain, via Raiden through a “payment/state channel”. The channel refers to a private exchange between two parties, who set terms and digitally .
sign them, then exchange funds deposited in advance. When the exchange is complete, Raiden will then go back to the ETH blockchain to finally record the completion of the transaction (“settlement”).
Off-chain can scale the number of transactions handled on Ethereum from 20-per-second to millions- per-second, scaling in a linear fashion with the number of users utilizing off-chain scaling, as these transactions are done largely peer-to-peer.
The Significance of the Uraiden Launch
After two years in development, Brainbot (the company behind Raiden) shipped uRaiden for use on the Ethereum mainnet on November 30. uRaiden is a leaner version of Raiden Network (which the company will release later).
Uraiden represents the first off-chain transaction scaling network to arrive on Ethereum mainnet. It can transport Ethereum (ETH), ERC-20 tokens, as well as Raiden (RDN) tokens. With uRaiden, transactions
on Ethereum can occur off-chain which allows them to be completed in sub-second times (versus 53 seconds on average for on-chain Ethereum transactions). Sub-second transactions mean exchanges can be instantaneous - such as making an in-app purchase and receiving the digital good right away.
It also changes what's possible on Ethereum in other ways; for example, it facilitates micro-transactions. This means small transactions, usually below $1 or even sub-cent transactions, can be made in a cost- effective way. This is because the transactions are batched through uRaiden and then issued as a cumulative “bill” in one official transaction on the Ethereum blockchain, reducing the gas cost. Many crypto projects are evaluating uRaiden for these reasons alone, for example to enhance their decentralized video site with microtransactions so end-users can reward their favorite creators and do it without prohibitive blockchain costs. No fees are incurred for using uRaiden it is free of charge.
With uRaiden, projects and ICOs can also bypass network congestion on Ethereum. Instead of going through the blockchain, they can arrange and finalize transactions directly between parties. In other words, even CryptoKitties won't be able to stop that “unstoppable application”. Were CryptoKitties to use uRaiden, they could batch transactions to significantly reduce the overall load on the Ethereum network.
Projects Using uRaiden
Given the aforementioned advantages, it's not surprising the significant number of crypto projects already committed to using Raiden or testing it.
Grid+ (symbol: GRID) raised $29 million in its pre-sale to further build its blockchain energy solution. Grid+ offers an Internet-enabled, always-on appliance which processes payments for electricity in real- time. Grid plans to use Raiden to drive fees down for transactions that Grid+ users make outside of their own network, and across the Ethereum network. Grid+ believes usage of Raiden will give them the upper-hand on other energy marketplaces by saving costs for its users; they state: “The expected transfer fee for a $10 payment in the Grid+ Raiden hub will be 0.033% the cost or the Visa transaction and 0.05% of the public Ethereum transaction. This means Grid+ Raiden hub transactions will be 2,000-
3,000 times less expensive than typical payment costs. It is not inconceivable that other commerce will look to utilize [our service] to capitalize on these extremely low costs.” They have plans to utilize both uRaiden and later the Raiden Network. Enjin (symbol: ENJ) is planning to incorporate uRaiden with their smart contract platform that enables management of virtual goods for computer games. They state: “Enjin will be testing the Raiden Network for lightning-fast asset confirmation speeds.” Its team confirmed it will be testing uRaiden in Q1 2018.
In addition, the list of projects that have officially publicized their intent to use or test Raiden include: Loopring, Smart Mesh, OpenANX, Energy Network Foundation, Blockmason, Indahash, Ryder Network, Soma, Wala, and Trade.io.
Raiden is listed on Binance, Huobi, Kucoin; recently upcoming Chinese exchange Bibox agreed to list Raiden RDN). Bibox has a daily volume of $10M USD and is rapidly growing; the Bibox team includes the co-founder of OKCoin and core founding members of Huobi, the largest Bitcoin exchanges in China. Raiden opens a range of possibilities on Ethereum from enabling machine-to-machine transactions (“Internet of Things”) to peer-to-peer digital cash in retail environments with minimal wait times. It's only a matter of time for blockchain developers to find new ways to take advantage of “Instant”payment and micro-transaction features that Ethereum now has with Raiden.