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The Interledger Protocol (ILP) is designed to enable seamless transactions across different payment networks. It acts as a connector among various financial systems, allowing direct transactions while also supporting intermediaries when necessary. This open-source protocol aims to streamline inter-bank transactions, reducing processing times and costs.
Primarily developed by Ripple in 2015 with significant contributions from Stefan Thomas, ILP aims to integrate different ledgers to create an Internet of Value (IoV). The protocol seeks to foster innovation and collaboration in financial technology, promoting cross-chain communication and interoperability among diverse financial systems.
Cross-border transactions often face issues due to fragmented payment protocols, involving multiple intermediaries that complicate and lengthen the process. The Interledger Protocol addresses these challenges by using cryptographic escrow to secure transactions across connectors, ensuring conditions are met before fund transfers are completed.
ILPv4 forms the core of Interledger, defining how value transfers occur through a network of nodes. Payments are divided into small ILP packets, each containing transaction details. These packets are processed and verified by nodes, ensuring secure and efficient value transfers across different payment networks without dependence on any single network.
ILP can operate in atomic and universal modes. Atomic mode uses notaries to validate transactions, suitable for trusted financial institutions, while universal mode works between untrusted connectors using time-sensitive transactions. Although Ripple promotes ILP with XRP, the protocol remains flexible, supporting various digital assets for seamless cross-network payments.
