"Interledger protocol" seeks to unify digital currencies

Stefan Thomas, CTO of Ripple, has reportedly claimed that the Interledger Protocol (ILP), which began as their experiment to assess whether a single worldwide network could be created to unite all companies and individuals using digital currencies, is on track to implement a new global standard for online cryptocurrency transactions. This solution would provide a basis for the ledgers of various digital currencies to talk to each other, allowing for easy exchange between digital currencies. According to Mr Thomas, by using cryptographic algorithms, the ILP creates a system whereby different ledgers - such as the blockchain, upon which the entire Bitcoin network relies - can exchange any currency in a more efficient and standardised manner, via a secure third-party connector or validator machine. In practice, it is hoped that the ILP will encourage greater liquidity of digital currencies, with no one central institution acting as gatekeeper.

Bitcoin isn't the only way of sending digital money across the Internet. There's also Ripple. And Stellar. And Litecoin. And Ethereum. And so many others. Bitcoin is by far the most popular. But every so often, some developers or an entrepreneur or a company will decide we need something better. A coder named Jed McCaleb built Ripple as a better bitcoin. Then he built Stellar as a better Ripple. And he's not the only one.

'We're trying to create a global standard for payments.' Stefan Thomas, Ripple

Now, there's a movement to create a technology that would let all these online ledgers talk to one another, that would let you send money between these systems. Dubbed the "interledger protocol," the project began at the company that oversees Ripple. But in recent months, after the company publicly shared the idea, it has also won the support of several other notable names, including Microsoft and the World Wide Web consortium, the organization that sets the technical standards for the web. The idea is to create a single worldwide network that can not only unite all digital currencies, but all companies and individuals who use those currencies.

"This will be something that sits on top of all the ledgers and abstracts the differences," says Ripple chief technology officer Stefan Thomas. "We're trying to create a global standard for payments."

The hope is that the protocol will increase the adoption of online money and, more broadly, let us more efficiently send money from place to place. That's the goal of many existing projects. Ripple and Stellar, for instance, are designed so that you can send any currency and have it arrive as any other currency. You can send bitcoin and have them arrive as litecoin. You can send good ol' US dollars and have them arrive as dogecoin. The rub is that the community of businesses and developers who use these ledgers is limited---and you can't send money from one network to another. The interledger protocol aims to change that.

In a way, the project is the apotheosis of a decades-long effort to create what you might call "an Internet for money." Back in the early '90s, people like Marc Andreessen, the creator of the Netscape web browser, hoped to create an standard way of sending money across the web. The original hypertext transfer protocol---http, the standard that defined the underpinnings of the web---actually included a code for payments. Though this was never used, many outfits in recent years have tried at least to create a de facto standard for online money, from the bitcoin exchange Coinbase to Stripe, a startup that helps businesses accept all sorts of online payments. We're a long way from that nirvana where we can all send and receive money as easily as we trade texts and emails, but we're at least moving in the right direction.

New Freedoms, New Headaches

According to Ripple's Thomas, the company first designed the interledger protocol after various big banks balked at using a distributed ledger a la Ripple. Basically, these systems run their ledgers across a vast network of independent machines, and these machines span myriad countries. This creates a money system that's outside the control of any one bank or government, and though this creates new freedoms for some, it creates new headaches for others.

As Thomas explains it, the banks didn't like the idea of having machines in foreign countries validate domestic transactions, and they didn't like the semi-public nature of these ledgers, which could give outsiders a window into their businesses. The most they were willing to do, he says, was "fork" the code for Ripple and build their own internal system. And that would defeat the ultimate purpose. "A blockchain is essentially worthless if it's just used within a single organization," says Marly Gray, who oversees bitcoin work at Microsoft.

The solution was to build a way for banks to reliably interface with these distributed ledgers without actually joining them. This grew into a project that could not only maintain the idea of a distributed ledger, but extend it. "Rather than trying to create a global ledger that everyone can agree on," Thomas explains, "we're trying to tie together all the ledgers that are already out there."

In essence, the interledger protocol creates a system where two different ledgers can exchange money through a third-party "connector" or "validator" machine. But the ledgers needn't put their trust in the connector. Using cryptographic algorithms, the protocol allows the two ledgers and the connector to create an escrow of funds and then exchange the funds when all agree that the proper amount of money is available. "You create an ad hoc consensus group for each transaction," Thomas says.