What is Chainlink?

Chainlink is a type of  platform known as a decentralized oracle network. It acts as an important link between blockchain smart contracts and external data sources. The platform allows real-world data to be fed to smart contracts on the blockchain. 

To do this, independent intermediaries called oracles act as a bridge between external data and blockchain smart contracts. 

The decentralized network of oracles is made up of nodes – node operators retrieve data from off-chain sources. 

Chainlink oracles are decentralized, which is an important feature. It means no single person or group of people is in control of the data, which improves security and eliminates the chance for a single point of failure. Independent developers and large companies can sell data as node operators.

Chainlink technology translates real-world information in a language that works for blockchains and smart contracts. While Chainlink started on Ethereum, its services are now available on other blockchains such as Bitcoin. 

Chainlink has drawn much attention and interest since its launch, because it has solidified partnerships with big names like Google and Amazon. Many well-known DeFi protocols such as Polkadot and Aave also use Chainlink as an external data source.

In 2021, a whitepaper called Chainlink 2.0 was published, outlining ways for the platform to grow and evolve. Experts say Chainlink is well positioned to accelerate the adoption of next-generation blockchain use across industries from finance to supply chains. 

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what is chainlink

What is LINK?

Chainlink has a token called LINK that is used to reward operators that follow the rules and provide helpful data, as well as to collateralize smart contracts on the network. LINK is an ERC-667 token, it runs on Ethereum with similarities to the ERC-20 token. It is one of the top 20 cryptocurrencies in terms of market capitalization,

LINK can be stored in many Ethereum wallets like TrustWallet.

LINK isn’t designed to be used as a currency for everyday purchases, its purpose is to incentivize Chainlink operators who transfer data to and from blockchains. 

What is the history of Chainlink?

Chainlink was created in September 2017 by a company called SmartContract and launched in 2019. Creators Steve Ellis and Sergey Nazarov wrote the Chainlink white paper with professor Dr. Ari Juels. 

The goal was to address a key limitation faced by blockchains – how to connect with external, off-chain data. Chainlink’s decentralized network of oracles bridges this gap. 

An initial coin offering  for Chainlink brought in the equivalent of $32 million by selling 35 per cent of the one billion unit supply of LINK tokens. Another 35 per cent of LINK tokens was earmarked to incentivize node operators, while the remaining 30 per cent was used to develop the Chainlink blockchain.

How does Chainlink work?

  1. Understanding how Chainlink works, means understanding smart contracts. 

    Smart contracts are agreements on a blockchain that execute when a set of pre-specified conditions is met. The blockchain infrastructure ensures that these agreements are transparent and verifiable. They are also immutable, which means they can’t be changed, ensuring a high level of trust and security. 

    Crowdfunding is often used as an example to explain how this concept works. If a specified amount of money is deposited into a smart contract by a specified date, the payment is released to the fundraiser. If the conditions of the smart contract are not met, the funds are returned to those who made donations. 

    Smart contracts are often used to create new crypto financial products and assets. However, a key challenge is that smart contracts rely on external data sources to execute their terms.

    Chainlink solves this problem by using oracles to act as intermediaries between blockchain smart contracts and external data. 

    The decentralized network of oracles is made up of nodes – node operators retrieve data from off-chain sources. 

    Operators are able to set their own fee based on demand for their service and receive a reputation score, which means they can be selected based on their past performance. Operators have to stake their LINK tokens and those with the biggest stakes are in the best position to earn rewards. 

    There are three steps to the process. First, is oracle selection. Chainlink uses software to match up the data that is needed, with oracles that can provide it. The next step is data reporting. Oracles get the needed external data and provide it to the smart contracts running on the Chainlink blockchain. The final step is aggregation of the results. The validity of the data is assessed and a score is given. 

    To prevent oracle failure, the Chainlink white paper explains that there are three key principles: distribution of data sources, distribution of oracles and use of trusted hardware.

What does the future look like for Chainlink?

Chainlink has proven its function as a major player in the smart contract space. What’s next for this unique platform? Because Chainlink allows blockchains and off-chain systems to exchange data securely, there are many potential real-world use cases for the technology. 

For example, Chainlink could support the development of blockchain games using NFTs, because a decentralized oracle can create random in-game scenarios. There is also much potential for DeFi applications to use the technology to access interest rates or determine the price of assets. 

In 2021, a whitepaper called Chainlink 2.0 was published, outlining ways for the platform to grow and evolve. Chainlink has also published a report indicating plans for a staking program to launch in the second half of 2022.

Conclusion

Chainlink is a technology platform that allows non-blockchain businesses to securely connect with blockchain platforms. 

It acts as middleware that bridges blockchain-based smart contracts with external data such as stock prices. Chainlink’s LINK currency is used to pay Chainlink network operators as well as collateralize smart contract agreements. 

Chainlink has the potential to integrate blockchain technology with many different types of industries. A Chainlink 2.0 whitepaper outlines plans for growth and the platform has plans to introduce a staking program.