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Ripple CTO David Schwartz recently joined a conversation on X, discussing XRP, RLUSD and the XRP Ledger network.
An X user had asked how trust relationships are created between entities and the associated tokens, as outlined in XRPL documentation. The X user described scenarios in which XRP is only needed for transaction fees and where institutions can and will create trust relationships; in other words, without needing to transact with XRP.
In response to the user's question, Schwartz highlighted his support for institutions forming trust relationships as well as leveraging them. He added that this was the original vision for trust lines and the core concept behind ILP. This, he believes, is a huge win for everyone.
To put it in context, trust lines are ledger objects that require a 0.2 XRP reserve each. Authorized trust lines featured on XRP Ledger allow issuers to create tokens that can only be held by accounts that the issuer has specifically authorized.
Ripple's Interledger Protocol (ILP) is an open source protocol for sending international payments. It works by connecting various payment providers (for example, banks or cryptocurrencies) so that transactions can be settled between them.
Trust relationship core idea explained
Schwartz went on to explain the core idea of trust relationships using a simple illustration: "Imagine there are two entities that have some kind of trust relationship with each other. Maybe one already owes the other money. Maybe they extend credit to each other and settle every week. Maybe they have an open payment channel on XRPL. It doesn't matter."
According to the Ripple CTO, in theory, any means for either party to receive and send money could be considered a payment network.
"Say Alice and Bob extend credit to each other all the time and settle every week. Say Alice can accept bitcoin on the bitcoin blockchain and Bob can hand cash over the counter at his grocery store. You could use XRPL or ILP to convert bitcoin to cash by paying bitcoin to Alice and getting cash from Bob. XRPL or ILP would facilitate the discovery, quoting, payment atomicity, and accounting," the Ripple CTO explained.
Dan Burgin
Vladislav Sopov
U.Today Editorial Team