The definitions on this page explain the main terminology used in describing Ripple.
Parties can be individuals, groups of individuals such as a circle of friends, agricultural or other co-ops, businesses, governments, banks, etc.
A node has credit relationships (lines of credit) with other nodes. A node can be a payment endpoint, either a payer or a recipient. A node can be a payment intermediary, receiving value from one node and passing it along to another in a credit exchange as part of a payment chain.
A credit relationship exists between two nodes, say node A and node B. It describes a line of credit that node A has with node B, or the reciprocal line of credit that node B has with node A. It has a specific unit of value, such as the US Dollar, Euro, ounce of gold, or gigajoule. A credit relationship consists of accounts for both nodes, each containing the following data:
Two nodes connected by a credit relationship are called neighbors. Two nodes may have more than one credit relationship connecting them to each other, for instance to allow for credit relationships in more than one currency. The term is introduced and explained in this video from min.0:18 to min.1:30.
A credit network G = (V, E) is a directed graph with n nodes and m edges. Nodes represent entities or agents. Edges represent pairwise credit limits between agents.
It can be a link in a longer payment chain. Suppose a payer A wants to pay a recipient E, where the two parties are connected by nodes B, C, and D. Credit exchanges would Ripple through these credit relationships. When routing in the same currency, node B can charge a transaction fee, or can be altruistic and choose not to charge a fee. When routing between two different currencies, node B can charge an exchange rate between the currencies. In either case, node-specific exchange rates are used for the above conversion functions. So node B has an exchange rate table stored for routing payments between all of its neighbors.
Ripple client: Software to manage Ripple credit data.
A bank could "Ripple-enable" its online banking web interface to permit account-holders to send Ripple payments as an alternative payment mechanism, alongside the standard online checking functionality. The bank's software is a Ripple client, and has some means of authenticating itself to its Ripple server(s). The bank with "Ripple parallel to online checking" scenario described above is only one possibility among many. Online accounting software for direct payments, Inter-LETS payments, online currency conversions, and other scenarios also work. Potential Ripple clients.
The Ripple protocol allows for a number of servers to operate independently of each other, and communicate with each other when clients with different servers need to interact.