What is the Interledger Protocol?
The Interledger Protocol (ILP) is a groundbreaking open standard designed to enable payments across different ledgers, currencies, and networks. At its core, ILP solves one of the biggest challenges in modern finance: interoperability. Whether transferring money between banks, digital wallets, or even blockchain networks, ILP provides the framework for seamless value exchange without the need for a centralized intermediary.
Originally conceived by Ripple engineers in 2015, the Interledger Protocol has since evolved into a broader, open-source initiative managed by the Interledger Foundation. Its vision is simple yet ambitious: to create a global payment layer for the internet, much like TCP/IP did for information transfer.
Why Financial Interoperability Matters
Financial systems today remain highly fragmented. Sending money across borders can be slow, expensive, and often limited by jurisdictional barriers. While blockchain promised to solve some of these issues, it introduced a new problem—hundreds of competing networks, each with its own rules and tokens.
This is where ILP becomes relevant. By abstracting payments into interoperable packets, the protocol allows different systems—bank ledgers, blockchains, mobile money networks—to communicate securely and efficiently. According to the World Bank, global remittances exceeded $860 billion in 2023, highlighting the urgent need for faster and more inclusive payment rails.
How Does the Interledger Protocol Work?
Packet-Based Transactions
ILP uses a packet-switching model inspired by the internet. Instead of sending an entire payment in one go, it breaks the transfer into tiny packets of value. Each packet can move independently through different payment networks, ensuring flexibility and resilience.
Connectors and Routing
Connectors are nodes in the Interledger network that facilitate transactions between ledgers. They act like internet routers, forwarding packets of value across different paths until they reach the destination. Importantly, connectors don’t need to trust each other fully—the protocol’s cryptographic conditions ensure that either all packets settle, or none do.
Atomicity and Security
ILP employs a system of conditional transfers secured by cryptographic hash functions. This guarantees “atomic” transactions—payments either complete successfully across all ledgers or are rolled back, eliminating the risk of partial loss.
Use Cases of the Interledger Protocol
1. Cross-Border Payments
Traditional cross-border transactions rely on correspondent banking networks, which are slow and expensive. ILP enables near-instant settlements, reducing costs and making remittances more accessible.
2. Micropayments for the Web
ILP supports real-time streaming of payments, opening doors for monetizing digital content, pay-per-use services, or even IoT transactions. Projects like Coil have leveraged ILP to experiment with streaming payments for creators.
3. Multi-Asset Transfers
ILP isn’t limited to fiat currencies—it works across digital assets, stablecoins, and cryptocurrencies. For instance, sending value from a PayPal account to a Bitcoin wallet could be facilitated through the same protocol.
The Role of the Interledger Foundation
In 2020, stewardship of ILP transitioned to the Interledger Foundation, a nonprofit organization dedicated to advancing financial inclusion. The foundation funds community projects, maintains the protocol’s open-source standards, and promotes adoption in developing economies where digital payments can have the most transformative impact.
One of its major initiatives is the Financial Inclusion Program, which seeks to connect unbanked populations to digital financial systems through ILP-powered solutions.
ILP vs. Blockchain: Complementary, Not Competing
It’s tempting to assume the Interledger Protocol competes with blockchains, but the opposite is true. While blockchain networks like Ethereum or Solana create isolated ecosystems, ILP serves as the bridge between them.
Think of ILP as the “internet of value” that connects all blockchains, banks, and payment apps. Without it, the digital economy risks becoming a collection of closed islands. With it, value flows as seamlessly as data across the web.
Challenges to Adoption
Despite its potential, ILP faces hurdles:
- Network Effects: Like the early internet, ILP needs widespread adoption among payment providers to achieve real utility.
- Regulatory Uncertainty: Cross-border financial systems are tightly regulated, and ILP’s decentralized structure may face compliance challenges.
- Competition: Emerging standards like SWIFT’s gpi, ISO 20022 messaging, and even blockchain-native interoperability protocols (like Polkadot or Cosmos’ IBC) also aim to solve similar problems.
Future Outlook for the Interledger Protocol
The rise of Web3, CBDCs (Central Bank Digital Currencies), and digital payment platforms provides fertile ground for ILP adoption. As governments experiment with digital currencies and private firms build global wallets, ILP could serve as the connective tissue ensuring interoperability.
In many ways, ILP mirrors the early development of the internet itself. TCP/IP only became dominant after years of competing standards failed to scale. If ILP can achieve a similar breakthrough, it may become the universal payment standard powering the financial web.
FAQ: What is the Interledger Protocol?
What is the Interledger Protocol in simple terms?
The Interledger Protocol is an open standard that enables payments across different currencies, ledgers, and payment systems, making financial transactions as seamless as sending an email.
How does the Interledger Protocol ensure security?
ILP uses cryptographic conditions to ensure atomic transactions. Either the payment completes across all networks, or it automatically fails, preventing partial losses.
Who created the Interledger Protocol?
ILP was originally developed by engineers at Ripple in 2015, but it is now managed by the nonprofit Interledger Foundation.
What are the main benefits of the Interledger Protocol?
ILP offers faster cross-border payments, enables micropayments, supports multi-asset transfers, and promotes financial inclusion by connecting fragmented systems.
What is the future of the Interledger Protocol?
With the rise of digital assets, CBDCs, and global wallets, ILP could become the backbone of a truly interoperable financial internet.
Conclusion: The Coming Age of Interoperable Finance
So, what is the Interledger Protocol? It is the blueprint for a financial internet where money moves as freely as information. By bridging fragmented systems, ILP addresses inefficiencies that have plagued global finance for decades.
Its success, however, depends on adoption and regulatory clarity. If ILP can replicate the role TCP/IP played in unifying digital communication, it may well become the invisible backbone of tomorrow’s financial infrastructure.
The promise of ILP is not just cheaper remittances or smoother bank transfers—it is a future where financial inclusion, innovation, and interoperability become standard, not aspiration.
