Ethereum’s own ‘Lightning Network’ — Raiden Network completes first off-chain transaction

A team of ethereum developers has successfully completed what they say is the first off-chain transaction on a decentralized application network.

The transaction was sent from Copenhagen, Denmark, to Mumbai, India, and the test saw developers behind micropayments project Raiden Network send ether through clients run by members in those cities. Although the number of transactions was relatively small, ethereum developers more broadly saw the proof-of-concept as a key technological advance towards a pressing problem facing not only ethereum, but other public blockchains as well.

For example, the current daily transaction volume that Ethereum and Bitcoin can support is dwarfed by that of Visa or MasterCard. So developers have been seeking to overcome this challenge, and scaling has been widely regarded as a fundamental problem that needs to be solved.

However, some progress is being made. Raiden, a five-person team working to bring microtransactions to the ethereum blockchain, is inspired by the Lightning Network, an off-chain transaction network under development that is often touted as a solution to the scalability of the bitcoin blockchain.

The emergence of these two networks together is a testament to the small progress that the cross-blockchain community is working towards.

Heiko Hees, CEO of Brainbot Technologies, which led the development of the Raiden Network, explained the significance of the network:

“We are now able to perform scalable, fast, and very cheap off-chain transfers of tokens on Ethereum using a beta version of this system.”

Once the network is finished with its testing phase, Hees said, users will be able to develop Raiden for use with a variety of ethereum applications.

This might include completing micropayments in seconds for watching online videos or facilitating transactions in IoT-driven marketplaces where machines pay other machines in exchange for bandwidth or temperature sensor data.

Currently, prediction market Gnosis and file storage system Swarm plan to use this fast microtransaction network.

Transfer 'state'

A key innovation behind payment channel style transactions is that they allow users to route cryptocurrencies through a network of intermediaries, without having to trust any intermediaries with their funds.

But there is still a way to proceed. In the case of the first transaction on the Raiden Network, the intermediary node was placed in Florianopolis. Ethereum, by the way, was built for more than just payments. The smart contract platform applies blockchain technology to a range of internet applications, including an identity authentication system and a censorship-resistant Twitter.

The goal is to eventually extend these off-chain payment channels into ‘state channels’, applying a similar concept to non-monetary exchanges.

Gnosis founder Martin Köppelmann sees state channels as a more generalized version of payment channels. He said:

“State channels are used for state, or smart contract state.”

Köppelmann gave an example of a change of state that is outside the realm of payments.

He continued:

"You could use it to play a game of chess, where every move we make is a signed message we send to each other."

The idea is to move most transactions off the blockchain and onto off-chain channels. So, taking a series of moves in a chess game as an example, Köppelmann explained that only the final result must be written on the blockchain.

Using the Raiden Network

According to Hees, the next step for Raiden Network will be to ‘harden’ the software through a beta version that will be released by the end of this year, generalizing the network so that it can support more ethereum applications (for example, chess-like examples, or a censorship-resistant version of Twitter).

However, Hees believes that Ethereum’s audience is already large enough.

“Token transfer is probably the most important use case, and moving this process off-chain via the Raiden Network has enabled the expansion of various Dapps that will eventually involve a major token transfer.”

Köppelmann believes the micropayments network is sufficient for users to place bets on the prediction market Gnosis.

Other suggested use cases include prediction markets, decentralized exchanges, notarization, crowdfunding, and blockchain-based voting.

The Future of Ethereum

At the same time, there are other projects working on capacity expansion today.

While Raiden is the main state channel project underway, and the first to announce a proof-of-concept, there is at least one other project. Avocado, led by ethereum developer Jehan Tremback, is a low-level state channel project designed to support the same ethereum applications that Raiden will support in the medium term.

However, off-chain networks are not the only solution proposed to solve the scaling problem.

Köppelmann also pointed to sharding, a theoretical process by which blockchains could be separated like traditional databases.

But Köppelmann sees state channels as a piece of the puzzle.

“Whatever large Ethereum applications become will need state channels.”

He added: “If you really want something that has millions of users, blockchain is not currently equipped to handle that.”