How the Interledger Protocol (ILP) Powers Web Monetization
Mar 4, 2022
The motivation behind the creation of the API is simple. The ability to transfer money has been a long-standing omission from the web platform. As a result, the web suffers from a flood of advertising and corrupt business models. Web Monetization provides an open, native, efficient, and automatic way to compensate creators, pay for API calls, and support crucial web infrastructure.
You might wonder why Web Monetization hasn't happened sooner. That's a very good question. It's because, until recently, there hasn't been an open, neutral protocol for transferring money. But today, the Interledger Protocol (ILP) enables a simple, ledger-agnostic, and currency-agnostic method to transfer small quantities of money. ILP opens up the possibility for streaming money, making Web Monetization possible for the first time.
In 2022, many places will store money. We usually call them "ledgers", as they are a collection of accounts in which account transactions get recorded. By that definition, a ledger can be Paypal. Or Venmo. Or banks. Even Starbucks is a ledger. You have an account; the account stores money for you, and it records all your transactions.
The problems appear when you want to transfer some of that value stored in a ledger. There isn't interoperability between all of those ledgers.
The Interledger Protocol (ILP) was designed to solve precisely these types of problems. It's an open, neutral protocol for transferring money. Very, very small amounts of money at a time, just like the internet, or the TCP/IP protocol to be exact. TCP/IP is the set of communications protocols used to describe a network of interconnected computers, that can transport and route small packets of data between them. The biggest public network that implements the protocol is colloquially known as "The Internet". In the same way, ILP is used to describe a network of interconnected ledgers that can transport and route packets of value between them. The biggest public network that implements the protocol is called Interledger.
ILP enables the Web Monetization standard to add payments to the Web without being tied to a single currency or payment provider, or send payments to other ledgers, even if they are multiple hops away.
Stefan Thomas and Evan Schwartz co-created Interledger in 2015. In October of that year, the whitepaper "A Protocol for Interledger Payments" and the first implementation were released. Since then, the protocol stack has evolved and is currently at version 4. ILPv4 simplifies previous versions of the protocol and is optimized for routing large volumes of low-value packets, also known as "penny switching".
One of the side effects of the initial design of ILP was the ability to exchange any value amount, including extremely small values. Something the current banking rails can't do. It is the reason why Web Monetization is possible today.
If you'd like to be part of the future of Interledger or Web Monetization, please get involved. You can join the monthly Interledger Community calls where we showcase some of the exciting projects using the Interledger network. You can also join the Web Monetization Community where we gather case studies from people currently experimenting with the new standard.
By Alex Lakatos, Technology Lead, Interledger Foundation