This post is one of a series of posts I am writing where I try to apply the Feynman Technique to a number of different crypto token projects. You can find the rest here. None of this should be taken as investment advice. They are just meant to be simple introductions to the projects.
The Raiden Network is a system for conducting transfers between two participants quickly and at a low cost. Its purpose is to improve the existing Ethereum network. Transactions on Ethereum are not currently best suited for quick, small payments, so that’s where the Raiden Network comes in.
In order to send cheap and fast payments, the Raiden Network sets up a separate channel between two participants. Each participant indicates how much they want to potentially transfer to the other participant.
The two participants then can transact as many times as they want between each other that adds up to the amount they originally started with. Once one of the participants decides to end the transfers, the balances are settled and the final result gets sent to Ethereum for final recording of account balances.
The best analogy for how the Raiden Network works is the example of a bar tab. When you go to a bar and order a drink with a credit card, the bartender asks if you would like to keep your tab open or not. If you choose to keep it open, all further drink purchases are recorded by the bartender but not charged to your credit card until you decide to close it out. This reduces transaction costs for the bar and the amount of times you would have to settle your bill. That’s similar to how the Raiden Network works.
The Raiden Network also uses its own token called the Raiden Network Token or RDN. The token’s purpose is to be used as the currency for the Raiden Network. It is also possible that the token will be used in the future as a way to vote on improvements to make to the Raiden Network.