Remember when Neo Meets the Oracle for the first time? A great scene, right? Well, in just a few moments, we’ll explore why Chainlink has altered the course of blockchains forever.
One of the biggest challenges blockchains face is their ability to communicate with the outside world. Things like the weather conditions, sports scores, and other real-time data feeds are virtually impossible to incorporate into blockchains.
That’s because a blockchain needs to maintain a closed-loop environment for it to be secure.
That’s where an oracle such as Chainlink (LINK) comes into play.
In the Matrix, the Oracle gives Neo the most important piece of information that alters his path. Now any blockchain can get their very own oracle.
Despite being founded in 2017, Chainlink is poised to outperform its peers and create its own market class!
What is Chainlink?
Chainlink is a decentralized network that uses real-world data to make smart contracts function inside the blockchain. Chainlink’s unique capability to feed existent data from the real world to manipulate price thanks to its oracle. Oracles are the middle-men that help gather data from the real world to put into blockchains and later.
What makes it stand out is the tamper-proof nature of the system that cannot be easily manipulated despite being reliant on it. It holds to the system’s highly decentralized nature while also providing a secure infrastructure for everyone to use. It had successfully propagated the use of the ever-so-popular smart contracts while also innovating to bring every crypto investor something to look out for.
Who is behind Chainlink?
Chainlink came from the company SmartContract Chainlink Limited SEZC. The key people from this company are Sergey Nazarov (the CEO), Steve Ellis (the CTO), and Mark Oblad (the Head of Operations). The entire company roughly consists of about 30 people, all striving to break boundaries in the world of financial technology. These are the people who brought the world the next-gen level technology of Smart Contracts, the Oracle, and LINK.
How it works
To figure out how Chainlink works, we first need to review how smart contracts work while also moving into how the oracle system works.
So here’s the refresher on smart contracts. These contracts are basically codes that offer pre-specified agreements for the blockchain to execute once certain conditions are met.
The beauty of putting up smart contracts on the blockchain allows everyone to see and verify then and that the conditions written for it cannot be changed once submitted. This easily gives it a high level of legitimacy, along with the fact that it can be a well-trusted system.
The problem with smart contracts is that it’s not actually as smart as it’s named. It can only process data from within the blockchain, but not outside of it. For the smart contract to form an agreement that relies on things outside the blockchain, it should create on-chain agreements while reading through off-chain data. There is a stark difference in language and too far a reach for information. This is where oracles enter the picture.
An oracle is the middle-man for this to happen, offering itself as a bridge that translates data from the real world (which is off-chain) to the smart contracts (which is on-chain) and vice versa. But being in a decentralized system, what good does having only one oracle do if it centralizes it all back?
This is where Chainlink comes in, as it offers several nodes that are inside a decentralized network. These nodes would then use the oracles to bring the off-chain data to the on-chain smart contracts, bridging the joint that was far from being completed beforehand. The existence of Chainlink easily negates the issue of oracles being centralized.
Three types of Chainlink Contracts
For things to proceed as needed, this is what happens.
Inside Chainlink, a smart contract that would require off-chain data would create a requesting contract to acquire the information it needs. Chainlink would then take this contract and tag it as an “event,” which in turn would push the system to create a corresponding smart contract called the Chainlink Service Level Agreement (SLA) contract.
This CLA contract manifests three other contracts along with it.
This checks the oracle’s authenticity and performance history through its current-running track record. This contract can easily block off nodes that are considered to be unreliable or are not reputable.
The Order-Matching Contract takes the request around the available nodes for them to bid on it. From here, it matches the requesting contract to the appropriate node to fulfill the transaction and request.
The Aggregating Contract gathers all the data from all the oracles chosen and begins validating and consolidating all the information to make a better-resulting output.
After the requesting contract goes through all these checks, it is then transferred to a “Chainlink Core” that will translate it into a language that can be understood off-blockchain. The translated requesting contract would then be brought to an application programming interface (API) that resides off-chain, in which then it could gather the off-chain data it needs.
Finally, it goes back into the Chainlink Core to be translated into on-chain language. Once completed, it goes back to the Chainlink Aggregating Contract. While the Chainlink Aggregating Contract runs, it processes data and sifts through each node to ensure they are reputable. Dishonest and/or faulty nodes are removed.
TLDR: The Chainlink Aggregator Contract aggregates, validates, and consolidates data.
So this is how Chainlink keeps the entire smart contract system reliable and honest despite requiring off-chain data, doing it most efficiently and accurately.
Now, let’s talk about the ever so famous LINK tokens.
Chainlink works with nodes to provide users with LINK tokens. People who use nodes (known as node operators) can provide data to smart contracts, participate in the stake of contracts, and even create their own nodes. The Chainlink node operators only take in LINK as payment for their work with the amount of LINK depending on the value at the time. In turn, they can stake their own LINK tokens that they have earning into the pool.
Since node operators stake their own link, this holds them accountable for their nodes. Dishonest and faulty nodes get taxed on their stakes, and their LINK is used to pay any penalties given. Honest, working nodes won’t get taxed, or penalized, giving the node operators incentive to produce good quality nodes.
Advantages of Chainlink
The biggest advantage chainlink has brought to the table is promoting oracle technology and creating smart contracts. One of the more common usages of it comes in the form of decentralized exchanges (DEXs) in which oracles take the place of order books for putting out the price of cryptocurrencies. The beauty of oracle as a finance technology breakthrough is that it can function in a trustless fashion.
Here are a few examples of DEXs & decentralized finance platforms already using Chainlink for order book information:
With all the systems in place for chainlink, the data being fed into the oracle is sure to be correct, timely, and far from being corrupted by outside sources and powers. Even broken and failing nodes have nothing against chainlink. If one crashes, the system is well-optimized enough to feed a higher ranking alternative to it.
Recent news and events
Chainlink beat Bitcoin with a 610% year-to-date (YTD) return. Reportedly, the numbers had easily outperformed every other cryptocurrency in the market.
The only current problem is that it has recently been too focused on work and has been more silent around social networking sites. Despite reaching an all-time high at the peak of 2020 summer’s altcoin frenzy, a 60% decrease in Twitter conversations was seen for the token. The conversations continue to plummet, but weirdly enough, the token has rebounded 70% from the low blow it took.
A positive outlook for Chainlink
In the land of the blind, the one-eyed man is god. In this case, the blind being blockchains, and the one-eyed man is Chainlink.
Things such as weather, the winner of a UFC match, insurance information, and other off-chain data can all be safely processed into any blockchain via Chainlink to provide a safe, tamperproof and decentralized solution. It’s pretty amazing, actually!