Interledger: The Universal Protocol for Connecting Blockchains and Value Networks

Introduction to Interledger

Interledger emerged from the need to create a blockchain-agnostic smart contracts platform, addressing the challenge of neutrality in decentralized applications. It solves a critical internet-wide issue: enabling direct monetization without reliance on a single cryptocurrency, proprietary network (like Visa or PayPal), or centralized platform (such as Apple). The core question Interledger answers is:

What would a universal network for transferring value—independent of any company or currency—look like?

Launched in late 2017, Interledger’s protocol facilitates trustless cryptocurrency exchanges and micropayment streaming, among other innovative use cases. This article explores its architecture, key features, and real-world applications.

How Interledger Works: A Decentralized Exchange Network

The Role of Connectors

Interledger comprises a network of connectors—independent operators functioning as decentralized exchanges or market makers. These enable users to trade assets (cryptocurrencies, fiat, tokenized assets) natively across blockchains, eliminating the need for centralized exchanges.

Key Attributes:

• No central authority or single-currency dependency.
• Protocol-agnostic design, compatible with any blockchain.

Cross-Currency Transactions

Interledger allows seamless cross-currency transfers. For example:

1. A sender initiates a transfer in BTC.
2. The recipient automatically receives ETH (or their preferred currency).
3. Connectors handle the exchange in transit, abstracting complexity from users.

Behind the Scenes:

• Interledger packets (denominated in the sender’s currency) route through connectors.
• Connectors apply real-time exchange rates and forward packets in the receiver’s currency.
• For illiquid assets, multiple connectors collaborate to find optimal paths, all while ensuring trustless transactions (more below).

Key Features of the Interledger Protocol

1. Simple Packet Format

Inspired by Internet Protocol (IP), Interledger uses three packet types:

• Prepare: Request to transfer value.
• Fulfill: Confirmation of successful transfer.
• Reject: Error or declined transaction.

ILPv4 Packet Fields:

👉 Explore ILPv4’s technical specs

2. Trustless Sending

Interledger guarantees no loss or theft in transit via a two-phase commit:

1. Forward Phase: Sender broadcasts a Prepare packet.
2. Backward Phase: Receiver confirms with a Fulfill packet (containing cryptographic proof).
3. Failure Handling: If a packet is dropped, funds never leave the sender’s account.

Example Flow:

Sender → Prepare → Connector → Receiver  
Sender ← Fulfill ← Connector ← Receiver

3. Packetizing Value

Interledger splits large transfers into smaller packets (like IP data packets), enhancing:

• Efficiency: Connectors optimize liquidity usage.
• Security: Mitigates risks like the "free option problem".
• Interoperability: Works with ledgers supporting basic value transfer.

Benefits:

• Lower costs via dynamic liquidity allocation.
• Shorter timeouts reduce exploit risks.

Current Applications and Ecosystem

Companies Building with Interledger

👉 See how to join the Interledger testnet

FAQ

Q1: Is Interledger tied to a specific cryptocurrency?

No. Interledger is currency-agnostic, supporting BTC, ETH, XRP, fiat, and more.

Q2: How do connectors earn revenue?

Connectors profit from spread fees on currency exchanges, similar to traditional market makers.

Q3: Can Interledger handle micropayments?

Yes. Its packetized design is optimized for streaming micropayments (e.g., pay-per-second content).

Get Involved

• Developers: Start with moneyd and ILP tutorials.
• Entrepreneurs: Explore grants via Xpring.
• Community: Join W3C Interledger Group.

Interledger’s open protocol is paving the way for a borderless financial web. Build on it today!