Summary
- Chainlink is the most widely-used oracle marketplace that feeds data to smart contracts securing more than $75 billion in DeFi (decentralized finance).
- Users can add their own oracles to the marketplace or pay for services by existing oracles.
- The LINK token is the native token of the Chainlink ecosystem with 470 million tokens in circulation. LINK is now available for trade on Phemex: LINK/USDT.
What is Chainlink?
Chainlink (LINK) is a marketplace for oracles that connect real-world data to blockchain smart contracts. The LINK token is the native token of the Chainlink ecosystem. LINK is currently trading at $15 with a market cap of $7 billion and a circulating supply of 470 million tokens.
Chainlink introduced the concept of “oracles” – decentralized data providers that feed data such as price feeds, weather, insurance data, and other useful information to blockchains. These oracles help secure over $75 billion in data over decentralized applications.
Blockchains such as Bitcoin (BTC) do not support smart contracts, but with the introduction of Ethereum (ETH), blockchains added extra features that allow them to be used for more than mere money transfers. Chainlink expanded on smart contracts by allowing them to connect to real-world servers and data feeds.
How Chainlink and Smart Contracts Operate Together?
From the moment smart contracts were employed for autonomous operations on decentralized ledgers, the digital world was transformed. Smart contracts are not entirely new, and although they are closely associated with blockchains (decentralized ledgers developed with the advent of Bitcoin), the groundwork for self-executing contracts was already previously laid out.
Chainlink works to expand the capacity of these smart contracts within and without the blockchain through a protocol that enables them to access real-world data to execute a variety of programs and applications. But first, before exploring how Chainlink works, let us revisit how smart contracts operate.
How Smart Contracts Work?
At its core, a smart contract is a programmable digital contract that features pre-specified conditions. The idea behind smart contracts dates back to the 90’s when cryptographers such as Nick Szabo tried to invent ways to automate legal contracts. This concept was introduced to blockchain with the introduction of Ethereum.
The smart contract evaluates input information and automatically executes a command based on whether the pre-specified conditions were met. A good example of how a smart contract works is an escrow service that essentially works to solve the lack of trust between a seller and a buyer. In such a case, a smart contract replaces the escrow intermediary by ensuring that funds from the buyer are released to the seller as long as the delivery of the product is achieved. The smart contract automatically takes in input data from both the seller and buyer to determine whether the pre-conditions for execution are met.
Once the seller is paid, this is reflected on the Ethereum blockchain and every transaction can be checked using block explorers. Most of these smart contracts are written in Solidity, a programming language that was invented by Gavin Wood, an Ethereum co-founder and Polkadot (DOT) founder.
Smart contracts are also used to launch crypto coins. ERC-20’s are coins that exist on top of the Ethereum blockchain. For example, the Chainlink LINK token exists as an ERC-20 token. Developers only need a bit of code to execute a smart contract and deploy their own token on Ethereum.
Why Are Smart Contracts Limited?
Despite their incredible capacity to facilitate transactions autonomously between two parties without the need for a mediator, smart contracts are limited in that they can only execute operations within the bounds of a blockchain.
ERC-20 tokens can only communicate with other ERC-20 tokens and they can’t take data from external sources such as price feeds, weather sources, insurance companies, etc. The only solution to connect this isolated on-chain data is to connect to off-chain sources using oracles.
If a smart contract is to execute agreements beyond the blockchain, i.e. off-chain, the off-chain data in question must be transformed into an on-chain format. This is where Chainlink comes into play.
Chainlink and Smart Contracts
Chainlink is the bridge between off-chain and on-chain data. The Chainlink network translates off-chain data to a format that can be understood by smart contracts. In addition, on-chain requests from smart contracts are translated to a format that can be understood by other programs outside the blockchain. Through Chainlink, developers can access a variety of data inputs thus extending the applications of smart contracts beyond blockchains.
How Chainlink Works?
The Chainlink network consists of nodes that provide data and information from off-chain sources. These nodes are rewarded for their work with LINK token payments. Essentially, the Chainlink network acts as an oracle that provides smart contracts with access to real-world data without sacrificing the security and reliability inherently associated with blockchain technology. With this process, Chainlink hopes to make it easier for market data and software APIs, banks, retail payment systems, and off-chain technologies to connect to smart contracts on decentralized blockchain networks.
What are Chainlink Oracles?
A Chainlink oracle is a software that acts as an intermediary translating on-chain data to an off-chain format and vice versa. All data that occurs on the Ethereum blockchain is confined to that blockchain. This is called “on-chain.” All data outside is called “off-chain.” In other words, Chainlink oracles are the bridge between off-chain and on-chain data. The Chainlink network translates off-chain data to a format that can be understood by smart contracts. By providing inputs and outputs of data for smart contracts, Chainlink oracles act as ‘middleware’ that enable smart contracts to be useful outside the bounds of blockchain networks.
For example, if Phemex wants to transmit data from its BTC/USDT chart about the current price of Bitcoin on the Ethereum blockchain, it can start a Chainlink oracle that broadcasts this price data to smart contracts on request.
How oracles connect to smart contracts. (Source: Chainlink)
This data transmission consumes network resources or “gas fees” and Chainlink is essentially a large marketplace for different oracles where people can pay for oracle services using the Chain LINK cryptocurrency.
In addition, on-chain requests from smart contracts are translated to a format that can be understood by other programs outside the blockchain. Through Chainlink, developers can access a variety of data inputs thus extending the applications of smart contracts beyond blockchains.
As a decentralized network, Chainlink doesn’t just gather its data from one source. The entire network is made of interconnected computers (also called nodes) that use the Chainlink oracle to gather data from different sources. To achieve this, Chainlink has partnered with a company called Oracle (a famous database management software provider) to provide developers and node operators an easy way of monetizing the data they gather from different sources.
What Are Chainlink Nodes?
Chainlink nodes are computers or servers that provide data and information from off-chain sources. Chainlink nodes are rewarded for their work with LINK token payments.
The Chainlink marketplace is a place where thousands of different nodes provide access to real-world data without sacrificing the security and reliability inherently associated with blockchain technology.
Using nodes, Chainlink hopes to make it easier for market data and software APIs, banks, retail payment systems, and off-chain technologies to broadcast their own data to smart contracts.
There are criticisms, however, that Chainlink nodes can be insecure if malicious node operators run their own node because anyone can start a Chainlink node and the marketplace is decentralized.
To combat malicious actors, the Chainlink marketplace often uses a combination of different nodes that represent the data in the most accurate way possible.
How Chainlink Contracts Request Information
When a smart contract on the blockchain puts out a request for information, a corresponding smart contract is created. This new smart contract is called a Chainlink Service Level Agreement (SLA) Contract. The SLA contract then creates three sub-contracts: a Chainlink Order-Matching Contract, a Chainlink Aggregating Contract, and a Reputation Contract.
Together, these three sub-contracts provide an extra layer of security and reliability for every source of information.
Chainlink Reputation Contract
The Chainlink Reputation Contract checks for the reputation, authenticity, and performance history of the Oracle provider (the node providing data on the network).
Chainlink Order-Matching Contract
The Chainlink Order-Matching Contract delivers the request for information to Chainlink nodes and selects the nodes that will bid to fulfill the task of providing Oracles.
Chainlink Aggregating Contract
Once all the nodes deliver the requested data, the Chainlink Aggregating Contract validates and reconciles it all for accuracy.
When nodes receive a request for information from the smart contract, they can translate that request into its off-chain equivalent using Chainlink Core, a software designed to translate on-chain requests to an off-chain programming language.
What Is The Chainlink Marketplace?
The Chainlink marketplace is a collection of thousands of different nodes that provide data from external sources to smart contracts on-chain.
In the Chainlink whitepaper, Nazarov stated that they had partnered with a company called Oracle (a famous database management software provider) to provide developers and node operators an easy way of monetizing the data they gather from different sources.
The Chainlink marketplace offers hundreds of nodes.
As a cross-chain network, Chainlink supports nodes for other blockchains aside from Ethereum including Polygon (MATIC), Fantom (FTM), and others. All of them charge a certain dollar amount using the Chainlink crypto LINK.
Users can also deploy their own nodes on the Chainlink node marketplace and provide their own data for smart contracts. Tens of billions of dollars were secured using Chainlink nodes and it’s the main reason the LINK token has been propped up since its inception.
What Is Chainlink’s Coin LINK?
The official Chainlink coin, LINK, is the native coin of the Chainlink ecosystem. LINK runs as an ERC-20 coin that is necessary for payment services on the marketplace.
Every smart contract requesting off-chain information pays Chainlink node operators with the LINK token. Since the entire operation is autonomous and decentralized, node operators get to set the price for the information requested based on current supply and demand conditions of the market.
In addition to its use as payment for node operators, the LINK token is also used for staking on the Chainlink network. To demonstrate their commitment to the network, node operators are required to stake LINK. Staking also incentivizes a higher standard of service as node operators are taxed if they deliver poor services.
Also, node operators with more LINK tokens staked have a higher reputation on the network therefore increasing the likelihood of being selected to provide data and earn more LINK tokens.
LINK and Chainlink Staking
Every smart contract requesting off-chain information pays Chainlink node operators with the LINK token. Since the entire operation is autonomous and decentralized, node operators get to set the price for the information requested based on current supply and demand conditions of the market.
In addition to its use as payment for node operators, the LINK token is also used for staking on the Chainlink network. To demonstrate their commitment to the network, node operators are required to stake LINK. Staking also incentivizes a higher standard of service as node operators are taxed if they deliver poor services.
Also, node operators with more LINK tokens staked have a higher reputation on the network therefore increasing the likelihood of being selected to provide data and earn more LINK tokens.
Who Is Behind Chainlink?
Chainlink was created by Sergey Nazarov, a Russian entrepreneur residing in the United States. Nazarov studied at New York University (NYU) and obtained a degree in business administration. He was a teaching fellow at the Stern Business School at NYU. His first entrepreneurial endeavor was ExistLocal, a P2P marketplace for local experiences in New York.
Sergey entered the blockchain space in 2014 when he founded a blockchain email service called “CrytaMail.” He later co-founded a start-up called “SmartContract” and built Chainlink a few years later using the knowledge he obtained at that company. Chainlink was his most successful endeavor.
There were rumors that Sergey Nazarov is actually Satoshi Nakamoto, the founder of Bitcoin. Nazarov first registered the domain SmartContract.com in 2008 before Bitcoin was invented, which lead to suspicion that he is indeed Satoshi Nakamoto.
It was later found out that Satoshi did indeed use a Russian proxy to register the domain name Bitcoin.org back in 2009 when the crypto was released. However, this theory was debunked when Whois records pointed to the fact SmartContract.com was first registered in 1999 and later dropped, only to be picked up again.
Is Chainlink a Good Investment?
Chainlink has provided returns of over 12,000% for early investors since it first launched in 2017. The LINK token was trading at $0.10 when it first launched and reached an all-time-high of $52 in May, 2021.
However, the token has stagnated since its rally to an all-time-high in 2021. At the current rate of $15 per LINK, it is down over 70% from its all-time-high. This could be attributed to the general downturn of the crypto market, as altcoins are often more affected than Bitcoin.
The Phemex LINK/USDT chart on TradingView.
The Chainlink marketplace has posted record TVL (total value locked) in excess of $75 billion. While this growth has not lead to appreciation in the token, the necessity to pay for services in LINK means that Chainlink will likely hold its value.
Chainlink is part of the WEF (World Economic Forum) and has received praise from the forum. Chainlink is also one of the few platforms that received a Gartner Cool Vendor award. The GrayScale Chainlink partnership lead to the creation of a Grayscale Chainlink Trust for the world’s largest crypto trust fund
The latest bullish news on Chainlink is that the former CEO of Google, Eric Schmidt, joined Chainlink Labs as an advisor. Eric Schmidt is known as one of the most successful strategists in Silicon Valley that made critical changes to the way Google worked and helped its growth in the early stages.
LINK staking was also unveiled in 2022. This was a long-awaited feature and part of the reason why Chainlink predictions for this year were bullish. With staking, LINK holders can lock their coins and secure the network in exchange for APY.
What Is The Chainlink Price?
The Chainlink to USD price fluctuates heavily based on the state of the market and is more volatile than Bitcoin or Ethereum. LINK tends to perform well when Bitcoin is on a bull run, similar to other altcoins.
The main concern investors have with LINK is that the price does not grow relative to the growth of the network. In November 2021, the network had record growth in excess of $75 billion, but the coin stagnated since its $52 all-time-high many months prior.
What Is Chainlink’s Future?
Given the purpose of the Chainlink project, which is to create useful tools with financial upside through the use of smart contracts, it’s easy to see why LINK will remain an important player in the crypto space over the coming years.
The Chainlink market cap has remained stable between $5-10 billion over the last 2 years with multiple spikes above the $10 billion mark. It was among the top 10 by market size and recently dropped out to top 20 due to rising competition.
Whether you compare Chainlink to Cardano (ADA), Ripple (XRP), or even Bitcoin, reviewing the architecture of the Chainlink platform reveals plans to go beyond the bounds of blockchain and into real-world value-based applications. This is what gives Chainlink a leg-up above other crypto projects whose value depends on speculation.
The team is actively working on improving the security of the network, growth is exceptional, and powerful Silicon Valley figures are onboarding the team to help develop the user experience. LINK is one of the top 20 cryptocurrencies by market cap and is one of the safest coins to invest in.
Conclusion
Chainlink is built to connect off-chain, on-chain, and cross-chain infrastructures, eventually becoming the benchmark for blockchain adoption and usage. In a world where data is increasingly becoming a sought after resource, the application of the tools that Chainlink is developing will cut across multiple industries.
If future projections from market analysts are anything to go by, Chainlink is expected to be a worthwhile investment for many in the crypto or blockchain industry and beyond. The project has financial upside potential for its investors, but the platform is also enabling the adoption of blockchain technology at a large scale thanks to its capacity to link off-chain data to on-chain smart contracts.
Register to get $180 Welcome Bonus!
