The main problem with blockchain technology today is scalability. Huge fees combined with long confirmation times make the idea of mass adoption of Ethereum and Bitcoin unrealistic at the moment. That’s where the Raiden Network comes in. Using off-chain transactions to solve the scalability problems facing Ethereum, Raiden will deliver “near-instant, low-fee” payments regardless of the number of transactions being processed in the network. Similarly, rapid blockchain payments will be carried out at Bitcoin's new Blockchain Lightning Network without worrying about block confirmation times.
I've consolidated information from multiple sources to come up with the following data:
The Bitcoin Lightning Protocol
The lightning network is an off-chain, HTLC ( Hashed Timelock Contracts) style, micropayment system which is designed to make transactions work faster in the blockchain. It was conceptualized by Joseph Poon and Tadge Dryja and is often referred to as “Layer 2”.
The official site mentions the following features as part of the new technology:
Instant Payments. Lightning-fast blockchain payments without worrying about block confirmation times. Security is enforced by blockchain smart-contracts without creating a on-blockchain transaction for individual payments. Payment speed measured in milliseconds to seconds.
Scalability. Capable of millions to billions of transactions per second across the network. Capacity blows away legacy payment rails by many orders of magnitude. Attaching payment per action/click is now possible without custodians.
Low Cost. By transacting and settling off-blockchain, the Lightning Network allows for exceptionally low fees, which allows for emerging use cases such as instant micropayments.
Cross Blockchains. Cross-chain atomic swaps can occur off-chain instantly with heterogeneous blockchain consensus rules. So long as the chains can support the same cryptographic hash function, it is possible to make transactions across blockchains without trust in 3rd party custodians.
The Ethereum Raiden Network
The Raiden Network is an off-chain scaling solution, enabling near-instant, low-fee and scalable payments. It’s complementary to the Ethereum blockchain and works with any ERC20 compatible token. The Raiden project is work in progress. Its goal is to research state channel technology, define protocols and develop reference implementations.
Blockchains don’t scale well because there needs to be global consensus on the order and outcome of all transfers. Every participant needs to learn about all updates to the shared ledger. Hardware and bandwidth constraints set a limit on the number of updates per second that can be shared in a decentralized network. The basic idea of the Raiden Network is to avoid the blockchain consensus bottleneck. This is done by leveraging a network of payment channels which allow to securely transfer value off-chain, i.e without involving the blockchain for every transfer.
I'm still unclear about the exact difference between Raiden and Lightning Network. If any of you can link me to an article, or explain it yourselves, I'd be very grateful.
(images are sourced from the web)