Important Information on Interledger Protocol
Within a very short time, the interledger protocol also known as ILP has moved from being an idea to become one of the seriously considered technology. Interledger is simply a web protocol that allows payment between independent networks. Therefore, it is possible to connect the ledgers of different banks and removing intermediaries. This will, in turn, reduce transaction time and costs involved in cross-border transactions. This technology has made payments across independent networks possible.
The main focus of interledger is to connect different ledgers. Through ILP, it is designed such that communication is possible between independent payment systems globally. The idea is to enable any payer to pay any payee while minimizing time and costs. Interledger protocol Ripple is designed to eliminate the need for both parties to have accounts on the same payment service.
The traditional way of sending money or payment within the same payment system is usually simple, inexpensive, and faster. The problem arises when moving money across different payment systems. In the case of cross-border payments, it becomes slow, cumbersome, and expensive. For international payments, especially, the process can take several days and the cost would be higher. This is because the payment would go through intermediaries and multiple systems.
The purpose of Interledger protocol is to ensure that payments are made faster and with the certainty required for payments of all types and sizes. Also, this technology seeks to make payments cost-effective for customers. At the same time, ILP aims at making it profitable for financial institutions, more so, the banks.
On the other hand, interledger protocol offers the same benefits just like blockchain systems including auditability and certainty of transactions. However, there are additional benefits of ILP that traditional blockchains do not offer. Such additional advantages include privacy, scalability, and interoperability.
ILP provides horizontal scalability such that transactions of any volume are possible without a limit. This makes it possible to meet customers demand. Again, ILP ensures that there is complete privacy on transactions. Therefore, the data will remain private to the transacting parties. Also, it allows the utilization of existing currencies, ledgers, and systems of record. Independent networks will also interoperate.
There is also the advantage of secure payments with ILP. Payments are secure because they don’t have to go through multiple systems to get to the final recipient. However, ILP uses ledger-provided escrow to ensure interledger payments are secure. Because of this, every participant is isolated from any failure risk or malicious behavior.
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