Clear DefinitionsInterledger Protocol
2 min read
Pronunciation
[in-ter-lej-er proh-tuh-kawl]
Analogy
Interledger Protocol is like a universal shipping system that can transport packages between any carrier networks worldwide. Just as shipping containers standardized global freight regardless of what ship, train, or truck carries them, ILP standardizes payment packets so they can flow through any financial system—from traditional banks to blockchains to mobile money networks. The package isn't released to the final recipient until confirmation travels back through the network, ensuring the sender knows the delivery was successful before payment is finalized.
Definition
An open protocol for sending payments across different ledgers, designed to facilitate transfers between any two payment systems regardless of the underlying technology. Interledger Protocol (ILP) uses packet switching and conditional transfers to enable atomic, secure payments across heterogeneous financial networks.
Key Points Intro
Interledger Protocol provides a universal standard for connecting diverse payment systems.
Key Points
Creates interoperability between different ledgers, blockchains, and payment networks.
Uses packet switching similar to the Internet's design for routing payments across networks.
Implements conditional transfers that ensure atomicity without requiring global consensus.
Operates without a native token or single blockchain, focusing instead on protocol-level standards.
Example
A business using Interledger could send a payment from their bank account to a supplier who wants to receive Bitcoin. The payment would flow through a series of connected ledgers—from the banking system, through connector services, and finally to the Bitcoin network—with each connector handling the exchange between their supported ledgers. The entire transfer happens automatically, with connectors competing to offer the best exchange rates and the payment only executing if it can reach its destination at an acceptable rate.
Technical Deep Dive
Interledger implements several key technical components: (1) A four-layer protocol suite including the Application, Transport, Interledger, and Link layers; (2) Connectors that serve as intermediaries between different ledgers, similar to routers on the Internet; (3) Cryptographic conditions and fulfillments using hash time-locked contracts or similar mechanisms to ensure payment atomicity; and (4) Packet formats that standardize payment information across systems. The core protocol (ILPv4) defines the packet structure, addressing scheme, and error codes, while higher-level protocols handle specific use cases: STREAM provides reliable payment streams with flow control and congestion management; SPSP simplifies payment pointers for human-readable addressing; and IL-RFC-29 defines peering, routing, and settlement between connectors. Unlike blockchain-based interoperability solutions, ILP doesn't require consensus between all participants or a single global ledger. Instead, it focuses on bilateral relationships between connectors with trust minimized through small packet amounts, conditional transfers, and fast settlement cycles. This design allows ILP to scale horizontally similar to the Internet, with the network becoming more valuable as more ledgers and connectors join the ecosystem.
Security Warning
When using Interledger for payments, understand that security depends on the connector path chosen. While the protocol includes protections against loss, payment paths involving multiple connectors can introduce counterparty risk. For large transfers, use trusted connectors or multiple smaller packets to reduce risk exposure.
Caveat
While Interledger provides a framework for universal payments, practical implementation depends on a robust network of connectors linking different ledgers. The protocol itself doesn't solve the liquidity, regulation, or exchange rate challenges inherent in cross-system transfers, instead providing a standardized way for market participants to address these issues through competitive connector services. Currently, the connector ecosystem continues to develop, with varying levels of coverage between different payment systems.
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