Ripple engineer Evan Schwartz, the Co-Creator of the InterLedger Protocol [ILP] and smart contract platform Codius, spoke at the CSAIL Initiative Launch Webcast recently. He elaborated upon the role that the InterLedger Protocol played in realizing the Internet of Value [IoV].
The Internet of Value is a vision for how payments work in unison so that moving value is as easy as moving information today. Schwartz spoke about the current state of affairs, and the difficulties faced today, stating:
“It’s really painful if you’re sending money we once heard a comment from a global banking executive saying that they could FedEx cash faster than they could send wire transfers around the world and with greater certainty.”
After speaking at length about Ripple’s progress towards providing frictionless payments, Schwartz began speaking about the ILP. The ILP is an interoperability protocol that allows for inter-networking between different ledgers, which includes traditional ledger system such as banking systems, existing payment providers such as Visa and MasterCard, and Distributed Ledger Technology such as the XRP Ledger.
“The biggest problem arguably today in payments is that the payment space is super fragmented. In every different country you have different regional payment methods, and if you go traveling there are certain payment methods that work around the world but many of them do not.”
He said that the fundamental problem is that these payment networks are disconnected from one another. This can be solved if payment networks are connected like the Internet, with providers being linked through a series of hops. Schwartz went on to provide a side-by-side comparison of the architecture of the Internet and the architecture of the InterLedger Protocol.
He referred to the hourglass architecture of the Internet, which is bound together by the Internet Protocol or IP. The sole function of IP is to send packets of data over networks, with its functioning allowing for specific applications on top of the universal infrastructure.
Schwartz then compared this to the architecture of InterLedger, wherein financial assets are transferred in packets. This then forms a similar underlying infrastructure, wherein different types of application protocols can be developed for various purposes. He stated:
“So the experience is I can send money as Bitcoin and you can receive it as whatever you want. Neither of us have to think about how that happens, it just happens in the stream of the payment the core of it.”
He mentioned that the simplicity of the protocol is an incentive for the widespread adoption by payment providers. Schwartz went on to speak about security offered by the ILP, saying that it cannot be worked using the optimistic execution method, which is how current payment providers work. He said:
“InterLedger uses a two-phase execution when the key part of this is that the sender is guaranteed that the money cannot get lost in the middle.”
Schwartz elaborated on the subject of using InterLedger Protocol to pay for content through micropayments. As the current space for micropayments online is fragmented, the ILP functions as a common protocol to enable this use case. He stated:
“You know, I go to the New York Times and they have a different service than a different website. [It’s] a pain for everyone so you need this kind of common protocol in order to enable these types of micropayment use cases.”
InterLedger Protocol offers a fine-grained system of dispensing payments across value silos, explained Schwartz. He even offered an example of paying for everyday purchases with increments of Apple stock. He went on to say:
“We talked about the idea of streaming payments, where if you make payments so efficient that you could pay for like a milliliter of beer or a second of video. That’s the way we think about efficiency of payments.”