Ethereum's Scaling Solution Raiden Announces ICO, but Comes Under Criticism

The Ethereum network's latest scaling proposal the Raiden Network is launching an ICO to raise funds. Raiden boosts the speed and number of transactions to potentially millions per second. But the community is divided. The ICO has come under criticism for using an an ICO model instead of native Ether.


The Ethereum network's latest scaling proposal dubbed Raiden Network is launching an ICO to raise funds for protocol development. Raiden is set to enable faster payments, higher transactional throughput, and lower fees.

Raiden's Network Solves Scalability

Raiden works as an off chain payment network taking the load off the main chain by pushing out transactions to offline payment channels. This offline network relies on a series of intermediaries known as payment hubs that relay transactions before final settlement on the main chain. The result is a significant boost in the speed and number of transactions to potentially millions per second.

Raiden's scalability solution works for tokens on Ethereum as well as offering APIs for interactions with decentralized applications.

Scalability is an industry-wide problem that plagues other networks such as the Bitcoin blockchain. Raiden's attempt at solving scalability is not new. The team drew inspiration from Bitcoin's lightning network, a similar offline payment network. Scalability is a prerequisite for wider adoption evidenced by the ongoing arms race to scale. With a maximum rate of 10 TPS, Ethereum's performance is nowhere near Visa and Mastercard which process 100,000 Transaction per second.

In August 2016, Raiden conducted a successful proof of concept sending instant micropayments from Copenhagen, Denmark to Mumbai, India. Heiko Hees, the lead developer of Raiden and CEO of Brainbot Technologies, deemed the alpha test a precursor to an eventual release. At the time, their test used Ether clients run by individual team members. 

The most recent test network made public on Github on September 6 marked another milestone. The project is generating excitement within and around the community. 

Raiden Network ICO set for October

Raiden's ICO is slated for October and has received the backing of Vitalik Buterin as part of the Ethereum scaling roadmap. The team is confident about their upcoming ICO and will not be aggressively promoting their token sale.

RDN tokens will be made available through a Dutch auction-style ICO model where the price of token declines over the period of the sale. So what is the utility of the RDN token?

The Raiden network will not be free to use. Part of its architecture requires constant monitoring of transactions across the offline payment channels for a duration of time. It is a security measure to ensure funds are not stolen. Rather than have users do this themselves, the task is outsourced to vendors paid in RDN tokens.

Critics Voice Concern

But Raiden has also come under criticism for choosing an ICO to raise funds and the use of a token instead of native Ether. Critics point at the lightning network on Bitcoin as an example of a similar project that did not require an ICO. 

The announcement drew sharp responses from r/Ethereum and Litecoin founder Charlie Lee who Tweeted:

"So disappointed to see Raiden (i.e. Lightning on Ethereum) go for a cash grab. A token is not needed. 5+ LN teams on Bitcoin and no ICOs."

While Raiden potentially scales performance, some are skeptical of the high price paid for second layer scalability. The use of payment hubs, for instance, raises concerns of centralization and reintroduces a trust element. Others think the networks introduces unnecessary fees, profit incentives and possibly an alternative blockchain competing with Ethereum in the marketplace.

So far, none of Ethereum's scaling solutions on both the base and second layer are live. The network continues to suffer congestion, especially during ICOs. Bancor's $150million ICO and Kyber's $50 million both experienced network delays as investors sent contributions to the token sales.

Ethereum needs to scale quickly to keep up with the demands on its network.