This article was first published on Stories by Raiden Network on Medium
A few weeks ago, we published a video explaining the underlying logic behind Raiden. This article breaks down the video’s content into reading content and infographics.
We will guide you through the basics of a payment channel network, as well as the mechanics of mediated transfers, routing and handling of multiple pending transfers.
Payment Channel Network Basics
Payment channels enable tokens to be exchanged between counterparties off-chain. A payment channel in Raiden is always backed by an on-chain deposit of tokens.
When making a payment, the sender signs a balance proof to the respective receiver. As an analogy, balance proofs can be imagined as a form of digital checks. They cannot exceed the amount of tokens held on-chain by both parties respectively and are therefore guaranteed to be redeemable for tokens.
Payments executed via a payment channel have the potential to be orders of magnitude faster and cheaper than on the blockchain. However, opening payment channels with counterparties costs gas and requires an on-chain deposit preventing the tokens from being used while held as deposit. Luckily, this downside can be mitigated, since in a payment channel network, users do not need to open channels with everyone they want to pay.
A payment channel network lets users pay anyone in the network by using a path of connected payment channels to mediate the payment. Within a token network, many payments can happen concurrently and independently of each other.
In order to ensure that all users behave in a fair way, a set of rules to govern the network is required. The Raiden Network protocol ensures that all nodes follow the exact same rules when sending and receiving payments.
Mediated transfers use several payment channels to finalize a payment, allowing users to make payments with other users they don’t necessarily have a payment channel with.
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Stories by Raiden Network on Medium