Clear DefinitionsILP
2 min read
Pronunciation
[eye-el-pee]
Analogy
ILP is like the shipping container standard for the digital financial world. Just as standardized containers revolutionized global shipping by allowing cargo to move seamlessly between ships, trains, and trucks regardless of what's inside, ILP standardizes payment "packets" so they can flow through any financial network—traditional banks, mobile money systems, or various blockchains—without each system needing specific integrations with all the others.
Definition
Short for Interledger Protocol, an open payment protocol that enables the transfer of value across different payment networks and ledgers. ILP creates interoperability between financial systems through packet-based transfers and conditional payments, without requiring a single blockchain or token.
Key Points Intro
ILP provides universal payment interoperability through standardized protocols rather than centralized systems.
Key Points
Enables payments across different financial networks without requiring them to adopt the same standards or technology.
Uses packet switching principles similar to the Internet to route payments efficiently across networks.
Implements conditional transfers to ensure payment security without requiring global consensus.
Operates as a protocol rather than a token, blockchain, or central counterparty.
Example
A worker in the United States could use ILP to send money to family in the Philippines, with the payment automatically traveling from a US bank account, through digital currency connectors, and arriving in the recipient's mobile money account—all without requiring the sender or receiver to understand the intermediary systems. The routing happens automatically, finding the most efficient path with the best exchange rates across the connected networks.
Technical Deep Dive
ILP implements a layered protocol design with four primary layers: (1) The Application layer handling specific use cases like sending payments or setting up payment streams; (2) The Transport layer providing features like reliability, sequencing, and congestion control; (3) The Interledger layer defining the core packet format for routing payments between ledgers; and (4) The Link layer dealing with transfers within a single ledger or payment channel. The current protocol version (ILPv4) simplifies the architecture around a minimal core packet format with three packet types: Prepare, Fulfill, and Reject. Payments typically use the STREAM protocol at the transport layer, which breaks larger payments into smaller packets and provides delivery confirmation. Addressing uses the scheme prefix 'g.' for global addresses, with payment pointers providing human-readable aliases (similar to email addresses for payments). Connectors serve as the network's routing infrastructure, competing to offer liquidity between different systems. Security relies on limiting risk exposure through small packet amounts and conditional transfers, rather than requiring global consensus or a universal ledger. This design allows the network to grow organically as more connectors and ledgers connect to the protocol, similar to how the Internet evolved.
Security Warning
When integrating with ILP, implement proper security measures for connector selection and packet size management. While the protocol includes protections against theft, connectors still represent potential points of failure if not properly secured or if handling packet amounts exceeding their collateral.
Caveat
While ILP provides an elegant technical solution for payment interoperability, its practical effectiveness depends on network effects—the protocol becomes more useful as more payment systems connect to it. The connector ecosystem is still developing, with varying levels of liquidity and coverage between different payment systems. Additionally, regulatory considerations remain a challenge for cross-border payments regardless of the technical protocol used.
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