What is Chainlink?

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by Adedamola Bada · 8 min read
What is Chainlink?
Photo: Shutterstock

Find a complete guide on Chainlink, the platform designed to bridge smart contracts technology with the real world, and its $LINK token.

Founded in 2013 in the Cayman Islands by Sergey Nazarov and Steve Ellis, Chainlink was created alongside SmartContract as a DeFi establishment that deals mainly in blockchain to serve as a middleman to connect regular data origins and technological blockchain methods.

The establishment is growing at an ever-increasing pace in the world of cryptocurrencies, with its current overall value resting at roughly $6 billion, and a single market token valued at $17 in the stock market.

Chainlink represents a decentralized data source network, possessing both an on-chain system for external parties to connect to & data approximation network, and an off-chain system for consensus mechanisms.

On-Chain Network

This Chainlink system is divided into three main components:

  • Reputation Contract – this is responsible for all keeping track of the measure of the performance of the oracle service.
  • Order-matching Contract – this is responsible for receiving all bids from oracle providers, after accepting and logging Service Level agreements (SLA).
  • Aggregating Contract – this collates the results of all bids from all those employing the use of the data source. It also sends the data needed in the reputation contract.

The network also has three stages, oracle selection, data reporting, and result mean.

  • Oracle Selection – a user declares some parameters that define their SLA proposition. The proposition covers everything ranging from query parameters to the quantity of data required, even the components required. The users are required to submit the SLA via the off-chain system and be in accord, before finalizing everything through the on-chain system; once finalized, the data source carries out the instructions given on the SLA to detail.
  • Reporting – once the data source executes the instructions via the off-chain systems, it reports back on the on-chain system.
  • Result Mean – once the result has been declared, it will be sent to the aggregating contract for compilation and estimation of a fair result.

Off-Chain Network

This entails an intertwining of nodes in connection with the Ethereum network. The nodes act individually, fetching replies for requests in the network. This system consists of three major elements, the Core, the external adapters, and the Subtask Schemas, all of which are responsible for all work regarding the blockchain such as creating and balancing its schedules, assist the oracle in the easy implementation of any programming language, and ensuring that all the adapters in the link are in perfect sync respectively.

Blockchain is the representation of cryptographic connections of blocks, with each one embedded with mathematical data of the former one. They are tamper-resistant, ensuring that every string of information contained within is safe. It was created in the year 2008, by persons who identify as Satoshi Nakamoto, to operate as the general transaction book or file of bitcoin. Several other public cryptocurrencies now employ the use of blockchain design for payment options. It is expected that private firms will be applied to businesses worldwide.

Smart Contracts are program protocols that are designed to swing into action as soon as some pre-defined settings are attained. These generally operate as a two-way system, eliminating the need for an external party for verification. These are generally automated, so they are great for executing transparent transactions that are employed by the general public. Another major perk of employing this service option is that they are invulnerable to tampering once they have been created, not even the persons who created it can interfere with its process.

Usually, they get information from data sources or APIs, which are generally called “Oracles”. Where the problem arises is that the smart contracts can only execute what has been provided to them, meaning that if they are fed bad codes or corrupted data, it would still be processed the same way good codes and data would be. The major difference here is the result showing “incorrect” instead of what was initially expected.

What made Chainlink popular is that they found a way to solve the issues encountered in the use of Oracles, by figuring out how to properly communicate without compromising the value or quality of data being transmitted. The process entails the development of several lone nodes that act as individual smart contracts, then serve as the link between the main smart contract and the data source. This new method has proven to be important and effective with its application in several spheres of the economic sectors such as:

  • Securities – processes involving stocks and bonds consult Oracles that give updated information on the state of securities in the market, and the interest garnered on them before making trades.
  • Insurance – to properly conduct an investigation before the payment of premium to the previously insured, updated information with regards to the incident will be required.

Another problem that the Chainlink was able to get around was the inability of several other smart contract services to send data into external networks. The Chainlink service can now ship data into services like payment networks, as long as it is verified as a tamper-proof contract.

What is $LINK Token?

$Link token of altcoin and is the Chainlink’s cryptocurrency. It was released in 2015 using a token from ERC677; the working principle of this cryptocurrency is based on the ERC-20 token and is only available on the Ethereum market network. Despite the negative effects the coronavirus pandemic has had on $Link and several other cryptocurrencies, there has of recent been a high rise in its market value; the current value of one is currently within the region of $17, placing it at 8th position on the list of securities with the highest market cap value.

Altcoin encompasses all currencies that serve as substitutes to the legendary bitcoin. Although built and developed on many of the working principles of their predecessor, they aim to locate its points of weakness and develop them to properly compete against bitcoin. There are several categories of altcoins namely: Mining-based, stable, security, and regular & utility tokens. The possibility that an altcoin belongs to more than one group exists.

It is, however, different from others because its primary use is as a stake in bid operations, serving as a bridge between the buyers and sellers of certain information. Node providers use $Link tokens to make proposals to potential buyers. If it falls through, they are mandated to supply every piece of the information as demanded by the buyer using the data sources, and then get their payouts in the form of more tokens.

Many have wondered why the payouts have to be in the form of $Link tokens rather than some other form of currency, but the upward performance of the tokens in the market has proven to be a wise choice. The added facts that the value increases with increase in number of users, the reward and punishment systems respectively for those who gather several over a given period and those who tend to attempt to tamper with the system only further keeps the firm’s interest in sticking to the home cryptocurrency

Chainlink Key Partnerships

The uniqueness of Chainlink has led to its popularity, hence securing partnerships with several top firms to provide its service without those firms requiring a new system of operation. Below are some major partners:

  • Cryptocurrencies – despite having theirs, Chainlink has teamed up with bigger cryptocurrencies to provide their data source services to bigger blockchains like Hyperledger and Bitcoin. This collaboration only further exposed its services to several others.
  • Synthetix – the collaboration in early 2019 with Ethereum-based stocks and shares trading platform Synthetix by providing a data source for the firm’s price feeds is another partnership that has proven to be fruitful for the service.
  • Google – tech giants Google has also benefited from using Chainlink’s data sources/Oracles as it helps to enhance information transmission between several blockchains and BigQuery which employs the use of Google’s infrastructure processing power.
  • Chinese Government – with the Chinese government looking to create its own Blockchain Service Network, the collaboration with Chainlink as the base of all the operations regarding the network of blockchains is a testament to the uniqueness of the service it offers.
  • SWIFT – a telecommunications firm that intertwines the banking sphere. Making use of the Chainlink’s service ensures that customers all around the world can now process money to cryptocurrency transactions in real-time.

Other notable mentions involve partnerships with Docusign – an online agreement platform, and BetProtocol – a gambling establishment to provide its unique “Oracle” service.

Future of Chainlink and $LINK

The aforementioned partnerships signify just how much the Chainlink service has revolutionized many industries, including but not limited to cryptocurrencies. The future of the blockchain and DeFi industry does however look highly promising as the world leans into more technological methods.

$Link token experienced tremendous progress in the first half of 2020 and continued in the same fashion in the third quarter. With a market cap value of $4 in May 2020, but now as high as $17, a whopping 250% increase. Although the sudden rise was rather unexpected, experts have predicted that the share value will continue to flourish over the coming future.

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