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Understanding How Ripple’s Interledger Protocol Works

Payment networks are now fragmented and disjointed. Transferring money within a nation or between accounts on the same system or ledger is quite simple. The same goes for transferring money between accounts on a different network or ledger. In most cases, however, transmitting data from one ledger to another is unfeasible. Even in places where connections are available, they are often manual, sluggish, or costly. Ripple’s Interledger Protocol allows the routing of payments across multiple digital asset ledgers. Meanwhile, it protects both the sender and recipient from the risk of an intermediary failing to perform its function correctly. 

Basically, it enables a worldwide web of networks for diverse forms of value. It does so by securing multi-hop payments and intelligent routing, creating a link between senders and receivers anywhere worldwide.

Ripple Labs uses Interledger to connect bank systems across borders, where the Ripple (XRP) token serves as a tool to settle payments across worldwide banks. Ripple Labs is a San Francisco-based cryptocurrency startup, which many associate with its popular crypto asset.

What Is Ripple’s Interledger Protocol?

Ripple’s Interledger Protocol provides only the functionalities necessary to send a payment from a source to a destination via a linked system of ledgers. 

Besides only the bare minimum needs for underlying ledgers, it does not feature critical public infrastructure or identity management. Also, it does not include liquidity management or other services usually present in payment protocol implementations.

The hosts in an interledger environment connect to this protocol through higher-level protocol modules. In return, they call on this protocol in a loop system. The interledger protocol modules communicate with local ledger protocols to transfer the interledger payment to a new account.

The Simple Payment Setup Protocol (SPSP) module contacts the interledger module with the address. It also includes other parameters in the interledger suite to send a payment. This way, a transfer, and the interledger packet arrive at the next connector or destination account. And it does so by the parameters the user specified in the interledger module. 

Each consecutive connection, and eventually the destination’s SPSP module, handle the transfer and interledger packet. This happens once the next host’s interledger module and each succeeding connector receive and control it.

Taking the Ripple example, the interledger module would invoke the local ledger module. This would then produce a Ripple transaction with the attached interledger packet before reaching the Ripple Consensus Ledger for confirmation.

Lastly, interledger addresses generate Ripple addresses via the local ledger interface. They correspond to the addresses of accounts in the Ripple network, which could link to other ledgers via a connector.

Implementation of This System

Ripple’s Interledger Protocol can function in two modes: atomic mode and universal mode. In atomic mode, notaries become part of the system. They are an ad-hoc group that verifies and validates transactions. 

Typically, atomic modes occur between trusted connector nodes between banks or financial service companies that might relate to each other.

The universal mode does not require notaries and can work between untrusted connectors. It uses Ripple’s internal cryptocurrency, XRP, to facilitate transfers. Time constraints accompany the transfer. The transaction becomes null if it does not occur within a specific timeframe.

The Ultimate Purpose of This Technology

With the interledger protocol, hosts may route payments over a network of interconnected ledgers, which is the protocol’s ultimate goal. The payments pass from one interledger module to another until they reach the target. 

The interledger modules belong to the hosts and connectors of the interledger system, and they continuously communicate with one another. Individual ledgers transport payments from one interledger module to another, depending on the reading of an interledger address. 

Consequently, the interledger address is a critical component of the interledger protocol’s architecture.

The protocol may leverage assets on underlying ledgers to protect senders and receivers from a failed transfer. This happens when routing payments involve substantial funds, and the selected connectors and intermediary ledgers may be untrustworthy.

Bottom Line – How Ripple’s Interledger Protocol Works

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The current Ripple network would probably not be the same without the Interledger protocol. Banks may use Ripple and this protocol to benefit from infinite scalability and total transaction secrecy. This new feature complements all of the previous advantages of Ripple’s distributed financial technology.

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