What is Chainlink?
Chainlink is essentially a decentralized oracle network. An oracle is a trusted third-party that provides external data to a blockchain or smart contract. Oracles are used to bridge the gap between the decentralized, self-contained world of the blockchain and the external world of real-time data and events.
Oracles can be centralized or, in the case of Chainlink.. decentralized. They can provide a variety of different types of data, including financial data, sporting event results, weather data, and more (see the “use cases” section below for more detailed examples). They are a key infrastructure component of the blockchain ecosystem and are used in a wide range of applications, including financial services, supply chain management, and voting systems.
What Chainlink does, essentially, is connect smart contracts on the blockchain to external data sources and APIs.
Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. They are often used on the blockchain because they are secure, transparent, and immutable.
However, they have limitations – one of which is that they can only access data that is stored on the blockchain. This means that they are not able to access external data or interact with external systems, which limits their potential use cases.
This is the problem Chainlink addresses, and solves. Chainlink is able to serve as the “middleman” (so to speak) between smart contracts and external data sources and API’s by using a network of decentralized nodes, which are operated by independent providers.
These nodes compete to fulfill data requests from smart contracts by offering the most accurate and reliable data. The smart contract then selects the winning node and pays it in the form of the blockchain’s native currency. Staking your LINK tokens with one of these node operators can earn you some passive income.
How does Chainlink work?
- A smart contract developer writes a smart contract that needs to access external data or interact with an external system.
- The developer deploys the smart contract to the blockchain, but the smart contract can’t directly access the external data it needs.
- The developer creates a Chainlink request for the specific data or interaction that the smart contract needs.
- The request is broadcasted to the Chainlink network, which consists of multiple Chainlink nodes.
- The nodes compete to fulfill the request by offering the most accurate and reliable data.
- The smart contract selects the winning node and pays it in the form of the blockchain’s native currency.
- The winning node retrieves the data from the external source and sends it back to the smart contract on the blockchain.
- The smart contract executes the desired logic using the received data.
Who is behind Chainlink?
Chainlink was founded by a team of experienced professionals with a background in blockchain, software engineering, and financial services. The company was co-founded by Sergey Nazarov, Steve Ellis, and Ari Juels.
Sergey Nazarov has extensive experience in the blockchain industry. Before co-founding Chainlink, he co-founded Secure Asset Exchange (SAE), a decentralized exchange platform, and served as its CEO. He has also worked as a software engineer at companies such as SendGrid and Pivotal.
Steve Ellis has a background in software engineering and has worked at companies such as Google and Pivotal. He has also held leadership roles at several startups.
Ari Juels is a computer scientist and researcher with a background in cryptography and security. He has held positions at organizations such as RSA Laboratories and Cornell University, and has published numerous papers on topics related to security and cryptography.
The project is also advised by Eric Schmidt. Eric is best known for his work at Google, where he served as the CEO from 2001 to 2011 and as the executive chairman from 2011 to 2017. Under his leadership, Google became one of the most successful and influential technology companies in the world.
In addition to the co-founders, and their star advisor, the Chainlink team includes a number of experienced professionals with expertise in areas such as blockchain, software engineering, and financial services.
Partners and platforms utilizing Chainlink..
The list of companies and protocols that are using Chainlink seems to be growing by the day. Since I won’t be constantly updating this overview, here are just a few examples..
- Google: Chainlink is used to securely provide real-time data to Google products, such as Google Sheets and Google Cloud.
- SWIFT: Chainlink is used to connect SWIFT’s global payments network to the Ethereum blockchain.
- Synthetix: Chainlink is used to provide price data to Synthetix, a decentralized exchange for synthetic assets.
- Chainlink VRF: A decentralized random number generation service built on top of Chainlink.
- Aave: Chainlink is used to provide price data to Aave, a decentralized lending platform.
- Nexus Mutual: Chainlink is used to provide risk data to Nexus Mutual, a decentralized insurance platform.
- Kyber Network: Kyber Network is a decentralized exchange that uses Chainlink to provide secure and reliable price data for the various assets that are traded on the platform.
- bZx: bZx is a decentralized margin trading and lending platform that uses Chainlink to provide secure and reliable price data for the various assets that are traded on the platform.
Chainlink Use Cases
While the above section gave examples of some companies that are currently using it, here’s an overview of some potential use cases in general..
- Supply chain management: Chainlink could be used to create smart contracts that track the movement of goods through the supply chain and ensure that all parties involved adhere to the terms of the contract.
- Financial services: Chainlink could be used to enable smart contracts to access real-time financial data, such as stock prices or foreign exchange rates, and use this data to facilitate financial transactions.
- Insurance: Chainlink could be used to create smart contracts that automate the claims process for insurance policies by allowing the smart contract to access external data about the event being claimed for.
- Predictive markets: Chainlink could be used to create predictive markets in which smart contracts are used to trade on the outcome of future events. The smart contracts could use Chainlink to access data about the events and determine the outcome.
- Voting systems: Chainlink could be used to create secure and transparent voting systems in which the results of the vote are recorded on the blockchain and can be audited by anyone.
Chainlink is an integral component of DEFI
Decentralized exchanges require a decentralized oracle to feed in the price data. More DEX’s have chosen to use Chainlink than any other oracle network. Some examples of data that DEXs might need to access include:
- Asset prices: DEXs often need access to real-time prices for the various assets that are traded on their platform. Oracles can provide this data in a secure and reliable manner.
- Exchange rates: DEXs that support trading between different cryptocurrencies often need access to real-time exchange rates in order to accurately convert between different assets. Oracles can provide this data.
- Data from external smart contracts: DEXs may need to access data stored on other smart contracts in order to properly facilitate trades. Oracles can provide a secure and reliable way to access this data.
Without access to this data, DEXs would not be able to function properly. Oracles provide a secure and reliable way for DEXs to access the data they need in order to function effectively.
Chainlink (LINK) Token Use
The LINK token is used to facilitate transactions on the Chainlink network and to incentivize node operators to provide reliable and secure data to smart contracts.
Node operators on the Chainlink network are required to stake a certain amount of LINK tokens as a security deposit. When a smart contract selects a node to fulfill a data request, the node operator earns a fee in the form of LINK tokens. This fee is paid by the smart contract as a way of thanking the node operator for providing reliable and secure data.
In addition to being used as a means of payment for node operators, the LINK token is also used to pay transaction fees on the Chainlink network. These fees are paid by the smart contracts that use the network and are used to cover the costs of running and maintaining the network.
The LINK token is an important part of the Chainlink ecosystem and plays a vital role in ensuring the security, reliability, and decentralization of the network.
Overall Thoughts
Chainlink is a key infrastructure component of the blockchain ecosystem and has the potential to revolutionize the way that businesses and organizations use smart contracts. It’s not a fly-by-night project, and I believe it has massive potential. They’ve had some dealings with the shady WEF, but I’m not sure to what extent. There are other competitors, such as API3 and Band Protocol, but they don’t have nearly the amount of partnerships and traction that Chainlink currently does.
At the time of this writing, I personally like Chainlink as a token to hold (though don’t take that as investment advice).
