---
html: issuing-and-operational-addresses.html
parent: issued-currencies.html
blurb: Businesses sending transactions on the XRP Ledger automatically should set up separate addresses for different purposes to minimize risk.
---
# Issuing and Operational Addresses

{% include '_snippets/issuing-and-operational-addresses-intro.md' %}
<!--{#_ #}-->

## Funds Lifecycle

All non-XRP balances in the XRP Ledger are _issued currencies_ which are tied to accounting relationships between two XRP Ledger addresses. When a financial institution uses Ripple's recommended separation of roles, funds relating to that institution tend to flow in a cycle.

{{ include_svg("img/issued-currency-funds-flow.svg", "Diagram: Funds flow from the issuing address to standby addresses, to operational addresses, to customer and partner addresses, and finally back to the issuing address.")}}

When the issuing address sends payments, it creates balances in the accounting relationships in the XRP Ledger. Within the XRP Ledger, users can exchange balances across different accounting relationships, so we use the term _issued currency_ to describe any non-XRP balance. (These can represent any type of value, not only "currencies" in the traditional sense.) Issued currencies have negative value from the perspective of the issuing address, since they represent obligations. The same issued currencies have positive value from the perspective of the issuing address's counterparties. When the issuing address receives a payment, this reduces its obligations, erasing the issued currencies that were sent.

The issuing address sends issued currencies to a standby address, or directly to an operational address. The standby addresses send those issued currencies to operational addresses. Operational addresses send payments to other counterparties, such as liquidity providers, partners, and other customers. Because all issued currencies are tied to accounting relationships with the issuing address, payments and exchanges of issued currencies "ripple through" the issuing address. The payment debits the sender's balance in its accounting relationship with the issuing address and credits the recipient's balance in the recipient's accounting relationship with the issuing address. The XRP Ledger also supports more complicated [paths](paths.html) that connect multiple issuers through order books and [liquidity providers who allow their funds to ripple](rippling.html).

## Issuing Address

The issuing address is like a vault. Partners, customers, and operational addresses create accounting relationships (trust lines) to the issuing address, but this address sends as few transactions as possible. Periodically, a human operator creates and signs a transaction from the issuing address to refill the balances of a standby or operational address. Ideally, the secret key used to sign these transactions should never be accessible from any internet-connected computer.

Unlike a vault, the issuing address can receive payments directly from customers and partners. Since all transactions in the XRP Ledger are public, automated systems can monitor for payments to the issuing address without needing a secret key.

### Issuing Address Compromise

If a malicious actor learns the secret key behind a institution's issuing address, that actor can create new issued currencies without limit and trade them in the decentralized exchange. This would make it difficult for the financial institution to distinguish legitimately-obtained issued currencies and redeem them fairly. If a financial institution loses control of its issuing address, the institution must create a new issuing address, and all users who have accounting relationships with the old issuing address must create new accounting relationships with the new address.

### Multiple Issuing Addresses

A financial institution can issue more than one currency in the XRP Ledger from a single issuing address. However, there are some settings that apply equally to all currencies issued from an address, including the percentage for [transfer fees](transfer-fees.html) and the [global freeze](freezes.html) status. If the financial institution wants the flexibility to manage settings differently for each currency, the institution must use a different issuing address for each currency.


## Operational Addresses

An operational address is like a cash register. It makes payments on behalf of the institution by transferring issued currencies to customers and partners. To sign transactions automatically, the secret key for an operational address must be stored on a server that is connected to the internet. (The secret key can be stored encrypted, but the server must decrypt it to sign transactions.) Customers and partners do not, and should not, create accounting relationships with an operational address.

Each operational address has a limited balance of issued currencies. When the balance of an operational address gets low, the financial institution refills it by sending a payment from the issuing address or a standby address.

### Operational Address Compromise

If a malicious actor learns the secret key behind an operational address, the financial institution can only lose as much currency as that operational address holds. The institution can switch to a new operational address with no action from customers and partners.


## Standby Addresses

Another optional step that an institution can take to balance risk and convenience is to use "standby addresses" as an intermediate step between the issuing address and operational addresses. The institution can fund additional XRP Ledger addresses as standby addresses, whose keys are not stored online, but are entrusted to different trusted users.

When an operational address is running low on funds, a trusted user can use a standby address to refill the operational address's balance. When a standby addresses run low on funds, the institution can use the issuing address to send more currency to a standby address in a single transaction, and the standby addresses can distribute that currency among themselves if necessary. This improves security of the issuing address, allowing it to make fewer total transactions, without leaving too much money in the control of a single automated system.

As with operational addresses, a standby address must have an accounting relationship with the issuing address, and not with customers or partners. All precautions that apply to operational addresses also apply to standby addresses.

### Standby Address Compromise

If a standby address is compromised, the consequences are like an operational address being compromised. A malicious actor can steal any balances possessed by the standby address, and the financial institution can change to a new standby address with no action from customers and partners.


## See Also

- **Concepts:**
    - [Accounts](accounts.html)
    - [Cryptographic Keys](cryptographic-keys.html)
- **Tutorials:**
    - [Become an XRP Ledger Gateway](become-an-xrp-ledger-gateway.html)
    - [Assign a Regular Key Pair](assign-a-regular-key-pair.html)
    - [Change or Remove a Regular Key Pair](change-or-remove-a-regular-key-pair.html)
- **References:**
    - [account_info method][]
    - [SetRegularKey transaction][]
    - [AccountRoot object](accountroot.html)


<!--{# common link defs #}-->
{% include '_snippets/rippled-api-links.md' %}
{% include '_snippets/tx-type-links.md' %}
{% include '_snippets/rippled_versions.md' %}
