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title: Glossary

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Glossary

Account

An administrative item that acts as a bucket of assets on a ledger.

Application Layer

The set of protocols built upon the Transport Layer that communicate payment details between senders and receivers. Application Layer protocols specify all of the data and methods needed to set up a payment for a specific category of use cases or applications. For example, the Simple Payment Setup Protocol uses WebFinger and HTTPS for account detail lookup.

Arbitrage

The practice of doing cyclic transactions which start and end on the same ledger, or groups of simultaneous transactions which add up to one cyclic transaction. Taking advantage of quirks and fluctuations in exchange rates, the goal is to achieve a destination amount which is higher than the source amount.

Asset

Something you can own. Can be a physical and unique item, a quantity of a physical substance, a specific physical collection of coins and bank notes, a non-physical quantity of currency, a non-physical claim to a resource, a reputation for keeping one's word, someone else's intention to obey the terms of a contract, etc. Some types of assets can be more easily traded on a ledger than others. Also, for some asset pairs it is easier to determine a fair exchange rate than for others.

Balance

The amount of a ledger's assets held by a given account. This concept is not as clearly defined as it may seem at first glance. When part of an account's balance is not readily usable, it is up to the ledger implementation to decide whether an account's "balance" includes only the readily usable balance, or all of it, or some number inbetween.

Centralized Ledger

A ledger which is operated by a single entity.

Conditional Transfer

Each local transfer is first prepared and then either executed or rejected. When a transfer is prepared, the ledger puts the funds of the source account on hold with a cryptographic condition and timeout. If the condition is fulfilled before the timeout, the transfer is executed and the funds are transferred. If the timeout is reached, the transfer expires and the ledger returns the funds to the source account automatically. Inspired by the Lightning Network, Interledger uses the digest of the SHA-256 hash function as the condition for transfers. The fulfillment is a valid 32-byte preimage for the hash specified when the transfer was prepared. Ledgers are responsible for validating fulfillments. Transport Layer protocols are used by the sender and receiver to generate the condition for a particular payment. To be fully Interledger-compatible, ledgers MUST support conditional transfers, though it is possible to send Interledger payments over a ledger that does not natively support the recommended features. See IL-RFC 17 for the full description and tiers of ledger requirements.

Connector

A party who chains one transfer to the next in an interledger payment. A connector receives a local transfer on one ledger in exchange for making another local transfer on a different ledger. A single interledger payment may include multiple connectors and may traverse any number of ledgers. Connectors take some risk, but this risk can be managed and is primarily based upon the connector's chosen ledgers and direct peers.

Cyclic Transaction

A transaction where the destination account is the same account, on the same ledger, as the source account. This can be useful when rebalancing liquidity (to enable future payments), or when rebalancing stored value (to spread risk, or to take advantage of changing exchange rates).

Destination Account

The account of the receiver, whose address is included in the interledger packet. Note that anyone can claim to have a certain Interledger address; address ownership is not enforced.

Destination Amount

The amount to be received by the receiver.

Destination Ledger

The ledger on which the final receiver of an Interledger payment holds their account

Distributed Ledger

A ledger that is operated by a group of entities and/or run on multiple servers. This term is used somewhat interchangeably with "Blockchain" or "Decentralized Ledger".

Exchange Rate

The price of one ledger's asset in terms of another ledger's asset. Connectors may generate revenue from the difference in value between incoming and outgoing transfers. Senders may request quotes from multiple connectors to determine the best price before sending a payment. The exchange rate between source and destination is determined by the product of exchange rates at each hop.

Executed

A final state of a transfer indicating that the funds were transferred to the account of the immediate recipient. See also rejected.

Execution Phase

The second phase of an ILP payment, in which the fulfillment is passed back from the receiver, via the connector(s), to the sender.

Final State

The state an interledger payment ends up in. Has to be either rejected or executed.

Fulfillment

A 32-byte value used to trigger the execution of a transfer. In most Interledger payments, the fulfillment is known only to the receiver (or in the case of the Pre-Shared Key protocol it is known to the sender and the receiver). For more details see conditional transfer.

Hold

Part of the sender's, connector's, and/or receiver's account balance is "on hold" when that balance is reserved for a specific ILP payment and is temporarily unavailable for use in other payments. The money is on hold while the ILP transfer is in the prepared state. If the transfer is executed, the money is no longer on hold, and added to the balance of the receiver of the transfer. If the transfer is rejected, the money is no longer on hold either, but is instead returned to the balance of the sender of the transfer.

Hop

One of the transfers that make up a payment. Specifically, a 'multi-hop' payment is one involving more than one ledger, and thus at least one connector. Likewise, 'best hop', as used in the ilp-connector source code when making routing decisions, is best interpreted as 'best next transfer'.

IL-RFC

Interledger request for comments. A document describing a part of the protocol stack, or a topic related to it, such as this glossary. The official list of IL-RFCs is maintained in gh:interledger/rfcs.

Incoming (Transfer, Ledger, Amount)

The transfer/ledger/amount, relative to the party who plays the 'receiver' role. See also Outgoing.

Interledger (in "Let's use Interledger for that!")

The Interledger protocol stack.

interledger (in "An interledger network")

Of a network of two or more ledgers, indicating that it uses the Interledger protocol stack. See also Interledger (The) The adjective 'interledger' is also sometimes used to simply refer to transactions that cross multiple ledgers, even if ILP is not used (similar to 'international' meaning 'across multiple nations').

Interledger (in "The Interledger")

The main public network of ledgers connected via the Interledger protocol stack. See ConnectorLand for statistics about it.

Interledger Addresses

Interledger addresses provide a ledger-agnostic way to address ledgers and accounts. Interledger addresses are dot-separated strings that contain prefixes to group ledgers. An example address might look like g.us.acmebank.acmecorp.sales.199 or g.crypto.bitcoin.1BvBMSEYstWetqTFn5Au4m4GFg7xJaNVN2. When initiating an Interledger payment, the sender attaches an ILP packet to the local transfer to the connector. The packet is relayed by connectors and attached to each transfer that comprises the payment. In some cases, ledger protocols may define alternative ways to communicate the packet. Note that anyone can claim to have a certain Interledger address, there is no registry of them. Whether or not a payment ends up at the intended receiver is ultimately safe-guarded by the hashlock condition, not by enforcement of address ownership. See IL-RFC 15

Interledger Architecture

The Interledger protocol stack, and the design principles behind it.

Interledger Layer

The lowest layer of the Interledger protocol stack (not counting the 'ledger layer' below it), consisting of the ILP Interledger protocol, and the ILQP quoting protocol,

Interledger Module

The part of a software application that processes ILP payments. Analoguous to the network card of an internet-connected computer.

Interledger Packet

The binary data packet that is forwarded along all hops from sender to receiver, and which provides the receiver with metadata which they may need before they are willing and able to fulfill the payment. It also contains the destination account's address and destination amount, on which connectors will base their routing decisions - both in choosing the onward path, and in deciding whether their incoming amount was big enough, in comparison to the destination amount mentioned in the ILP packet, to even merit an attempt to route the payment at all. See also routing table.

Interledger Payment Request (IPR)

A Transport Layer protocol in which the receiver generates the payment details and condition. The receiver does not share the secret used to generate the condition and fulfillment with the sender or anyone else, but the sender must ask the recipient to generate and share a condition before sending each payment. IPR is primarily useful for building non-repudiable application layer protocols, in which the sender's posession of the fulfillment proves to third parties that the sender has paid the receiver for a specific obligation. See IL-RFC 11.

Interledger Protocol (ILP)

The core of the Interledger protocol suite, described in IL-RFC 3. Colloquially the whole Interledger stack is sometimes referred to as "ILP". Technically, however, the Interledger Protocol is only one layer in the Interledger protocol stack.

Interledger protocol stack

The stack consisting of the Interledger layer, a choice of transport layer protocols, and the application layer.

Interledger Quoting Protocol (ILQP)

The protocol that defines how senders request quotes from connectors to determine the source or destination amount for an Interledger payment. Quoting is optional and senders MAY cache quotes and send repeated payments through the same connector. See IL-RFC 8.

Intermediate (transfer, ledger, amount)

Any transfer/ledger/amount that is neither directly adjacent to the sender, nor to the receiver.

Ledger

Stateful systems that track the ownership of assets. Ledgers contain buckets of assets known as accounts and record transfers between them. Each account has a balance, which is the amount of the ledger's assets the account holds. Account balances may be positive or negative, representing assets or liabilities.

Liquidity

Maximum amount which can be moved back and forth over a route.

Local Payment

A payment that contains just one transfer and zero hops, thus staying within the same ledger.

Outgoing (Transfer, Ledger, Amount)

The transfer/ledger/amount, relative to the party who plays the sender role. See also Incoming.

Payment

The movement of assets from one party to another. May imply that this movement is across multiple ledgers, as opposed to a local transfer. A payment consists of one or more ledger transfers. Roughly synonymous with transaction, and preferable in source code where 'transaction' may be confused with database transactions. The word payment has an emphasis on the context of the negotiation between the sender and receiver. For instance, it may be paying a debt, or a purchase, it may be a pull payment or a push payment. All these aspects which put a transaction in a wider context and link it to real-world interactions, contracts, and motivations between parties make a transaction into a payment. A cyclic transaction is generally not considered a payment, because the sending party of such a transaction is also the receiving party.

Payment channel

A method used by two parties on the same ledger to make multiple transfers such that the ledger enforces the final net positions without the ledger being informed of each individual transfer. One or both parties will generally escrow some of their assets on the ledger and transfers are made by exchanging "claims" that update the net balance. When one of the parties wishes to close the channel, they submit the final balance to the ledger. Different implementations have different rules about which party is allowed to close the channel, the consequences of doing so, and the mechanisms for settling disputes. For more details see Bitcoin Payment Channels. Note that payment channels are similar to trustlines except the ledger is used to escrow one or both parties' assets and provide clear resolution mechanisms for disputes over the final net positions.

Peer balance

See trustline.

Peering

Connectors "peer" with one another to exchange information used to determine the best route for a payment, and to route it (connect its chain of transfers during the preparation phase and execution phase. A peering relationship is usually implemented using either a trustline or a payment channel..

This is similar to how internet service providers peer with each other.

Preparation Phase

The first phase of an ILP payment, in which the ILP packet is passed from the sender, via the connector(s), to the receiver. Also, money is put on hold during this phase.

Prepared

The state of a transfer in which the source account's funds are put on hold by the ledger until either the expiry is reached or the condition is fulfilled. See Conditional Transfer.

Pre-Shared Key (PSK)

The recommended transport layer for most use cases. In Pre-Shared Key (PSK) protocol, the sender and receiver use a shared secret to generate the payment condition, authenticate the ILP packet, and encrypt application data. Using PSK, the sender is guaranteed that fulfillment of their transfer indicates the receiver got the payment, provided that no one aside from the sender and receiver have the secret and the sender did not submit the fulfillment. See IL-RFC 16.

Proposed

[DEPRECATED] The 'proposed' state of a payment is no longer used in practice; nowadays, payments skip this state, and are immediately created in their 'prepared' state. The official Interledger whitepaper still describes it, though.

Receiver

The party who is the beneficiary (payee) of a transfer or a payment (transaction). When Alice sends a payment through a connector to Bob, it's ambiguous whether by "the receiver" you mean the receiver of the transfer (i.e., the connector), or the receiver of the payment (i.e., Bob), so use this term carefully.

Rejected

One of the final states a transfer can end up in, that means the funds have been returned to the sender. See also executed.

Route

A set of transfers, chained together by the connectors between them. This can refer to both the "route" an actual payment has taken or the theoretical way that a future payment could go. The former is sometimes also called the path.

Routing table

A lookup table, used by a connector to decide who their outgoing receiver should be (the next hop, which may be another connector, or the destination receiver), and what the lowest outgoing amount is which they can safely offer for the outgoing transfer (equal to the destination amount in case the outgoing is the destination transfer).

Sender

The party who is the initiator (payer) of a transfer or a payment (transaction).

Simple Payment Setup Protocol (SPSP)

SPSP uses Webfinger (RFC 7033) and an HTTPS-based protocol for communicating account, amount, and Pre-Shared Key details from the receiver to the sender. See IL-RFC 9.

Source (transfer, ledger, amount)

The transfer/ledger/amount directly adjacent to the sender.

Transaction

See Payment. Use of the term 'transaction' is discouraged, due to possible confusion with for instance database transactions in source code.

Transfer

The movement of assets on one single ledger. Multiple transfers can be chained together into one multi-hop payment. Also sometimes called 'ledger transfer'.

Transport Layer

The middle layer of the Interledger protocol stack, which determines the condition and encoding of the data in the ILP Packet, and what details the sender and receiver need to discuss beforehand. It can be either either Pre-Shared Key or Interledger Payment Request. It is called the transport layer because it provides the end-to-end hashlock condition which ultimately connects the individual ledger transfers together, into one Interledger payment. In that sense, the transport layer "transports" the payment over one or more transfers.

Trustline

A trustline between two participating parties (participants) is a trust relationship between two parties, in which each keep track of their own balance.