Chainlink integrates real-world data into smart contracts and vice versa. The project seeks to enable access to real-world data and off-chain sources securely and reliably. Learn more Chainlink and the LINK token in this guide.
KEY TAKEAWYS
• Chainlink is a token and software development company that takes off-chain data and compute and puts it on-chain.
• The protocol uses decentralized oracle networks, smart contracts, and the LINK token to create an efficient oracle mechanism.
• Chainlink is the most popular blockchain oracle, having secured more than 1,000 integrations and multiple partnerships.
What is Chainlink (LINK)?
Chainlink is a cryptocurrency and software technology company that deploys verifiable off-chain data and computing resources on-chain. In other words, it expands the ability of smart contracts to access real-world data that exists off-chain.
Chainlink is infrastructure that connects and validates all data, and that connects and validates all connections between chains and from chains to existing systems.
Sergey Nazarov, Chainlink Co-creator
Smart contracts are computer programs that run on a blockchain. They automate processes on a blockchain. For example, when you use a decentralized exchange (DEX) to swap one cryptocurrency for another, a smart contract automates and handles this process. In this scenario, Chainlink provides the USD pricing data. Some use cases for Chainlink are:
- Verifiable randomness
- Cross-chain transfers
- Market and data feeds (e.g., USD pricing data)
- Proof-of-reserves
Smart contracts only offer on-chain services, which limits their functionality. Chainlink is committed to creating a safe network where decentralized oracle networks (DONs) are incentivized to provide on-chain functionality to off-chain services.
Chainlink history
“A rising tide raises all boats,” as they say; the significant 2017 bull run came with the eruption of many blockchain projects, and Chainlink is one. In 2014, Sergey Nazarov and Steve Ellis founded SmartContract — a smart contract that aims to expand smart contracts functionality by integrating them into external data sources.
Fast forward to 2017, Sergey Nazarov — a 32-year-old web entrepreneur with an in-depth knowledge of the crypto market, started Chainlink. The platform was initially built as an oracle system that settles agreements made on a blockchain.
However, Chainlink 2.0 has been developed, and it is now considered to be the canonical version. It’s a decentralized oracle network, acting as a robust abstraction layer, offering interfaces for smart contracts to extensive off-chain resources. Brief milestones in Chainlink’s history include:
- 2017: Chainlink raised $32 million during its ICO, with 1 billion LINK tokens in circulation.
- 2018: Chainlink acquired Town Crier, an authenticated data feed for smart contracts.
- 2019: Chainlink launched its platform on Ethereum’s mainnet.
- 2021: Chainlink’s project integration grew to more than 1000.
- 2022: Growth in data feeds and services
- 2023: Launched its Staking v0.2 and Cross-Chain Interoperability Protocol (CCIP)
How does Chainlink (LINK) work?
Firstly, users must create a requesting contract; then, real-world data is transferred to smart contracts through node operators. Chainlink registers this request as an event and then sets up a matching smart contract known as a Chainlink service-level agreement (SLA) contract, which then creates subcontracts that explain and enforce the working principles of the Chainlink protocol.
Lastly, the Chainlink node operator fulfills the request and receives LINK as compensation. To verify the authenticity of the data, the Chainlink protocol aggregates the responses from the DON and weighs each node operator’s response based on its peers. This mechanism offers an incentive market structure driving a “web of trust” and transparent reporting.
For example, if a smart contract requests the price of some asset denominated in USD terms and one node operator sends one price that is far off from the rest of the prices provided by the DON, then the protocol will select the response of a node operator from the aggregated prices of the DON.
What are oracles?
Oracles send data from the outside world, such as retail payments, price feeds, and weather data, to a blockchain. Thereafter, a smart contract on the blockchain typically utilizes the data to determine whether or not to carry out a set of conditions.
Oracles read, report, and confirm real-world data for blockchains and smart contracts through web APIs or market data feeds. For instance, let’s assume Jay and Harry are betting on who will win the Super Bowl. Jay bets $1000, and Harry bets $1000, with $2000 saved in escrow by a smart contract.
When the event occurs, how does the smart contract figure out who is the winner? This is where oracles come in. They read accurate event results outside of the blockchain and report them on-chain.
Oracles form the basis of Chainlink, and it’s more of a complex oracle itself that functions as a data feed based on predetermined conditions. For example, DeFi systems like AAVE and Synthetix employ Chainlink data feed oracles to get accurate real-world prediction markets in their smart contracts.
Core features
Chainlink’s primary working principle is with smart contracts. It registers a smart requesting contract as an event by setting a new matching smart contract (SLA), which provides access to any off-chain API you want to connect it to. Thus, it is possible to transact via a contract with any conventional payment network or banking system.
Below are three core features of this smart contract.
1. Reputation contract
Typically, this checks performance history, and it computes and records the performance history of operating nodes on the chain. This feature assures a reputation-based method that inspects, filters, and authenticates performance data on node operators and data sources by removing faulty and malicous nodes.
For example, marketplaces such as market.link provides individual data providers access to the Chainlink network to directly deploy their data on the chain via their own Chainlink nodes. Also, its analytical tools grant users access to check records on the historical performance of individual nodes.
2. Order-matching contract
This feature handles the contract query by sending and requesting to trustable nodes, checking their bids and the choices from the list obtained, and then selecting the suitable amount and types of nodes to answer the questions.
Often, the queries this contract checks are average response latency, the deviation of values in their reports from consensus values relayed on-chain, revenue generated, jobs fulfilled, and more. During this process, Chainlink converts the research contract queries into the off-chain to go into the real world and grab data from the internet.
3. Aggregating contract
Aggregating contracts validate data from both single and multiple sources. Then averages it to create a validated aggregate response, shedding away useless data.
Comparison with competitors
Chainlink is growing a solid ecosystem that is highly tamper-resistant, reliable, and future-proof. The cross-chain platform is by far the most popular Oracle network. Factors such as integration, partnership, and market price top the list of what puts it as number one.
Chainlink has more than 1000 integrations, including Binance, Ethereum Classic Labs, Matic Network, Dapps Inc., and other mainstream organizations like Google, Swipe, and a lot more.
The closest competitor being, Band protocol has less than 100 integrations and fewer partnerships. Band protocol is a community-based data resource that grants operators access to data feeds.
Chainlink differs from Band protocol in terms of operations. Band protocol allows DApp operators to access its data through its smart contract data feeds instead of Chainlink’s off-chain oracles. Other interesting oracle service providers are Witnet, API3, and WINKlink.
| Features | Chainlink | Band Protocol |
|---|---|---|
| Launched | 2017 | 2019 |
| Token | LINK | BAND |
| Supported blockchains | 9 | 19 |
| Integrations | 1,000+ | 50+ |
Tokenomics
The LINK token is the native currency of the Chainlink network. This ERC-20 token runs all the operations on the Chainlink network. It is used as an incentive to compensate node operators for participating in tasks that lead to blockchain success. It has a circulating supply of over 600 million tokens.
- Max Supply: N/A
- ICO Price: $0.11
- Market Cap: $6.4 billion
- Total supply: 608 million LINK
How to buy Chainlink (LINK)?
The Chainlink token is supported by many exchanges, including but not limited to Binance, Coinbase, and Gemini. Here, you can exchange your fiat currency, such as USD, for LINK.
To get this done, you need to set up an account on one of the secure and reliable centralized exchanges. Verify by providing any means of identification.
Decentralized exchanges also make it easy to buy or swap other altcoins for LINK tokens. Ultimately, since it is an Ethereum-based token, you can easily purchase LINK on any Ethereum wallet like MetaMask or TrustWallet. Using Metamask as an example, below is a step-by-step guide on how to buy LINK.
Price analysis and prediction
LINK is currently trading below $15 after reaching an all-time high of $54 during a brief bull season in May 2021. So, it’s safe to assume that LINK will surge, giving buyers control in the market. For a more detailed price analysis, please refer to our Chainlink price prediction.
Should you buy Chainlink (LINK)?
Chainlink seamlessly brings real-world data into blockchain technology and has proven sustainability and reliability over the years. If you’re feeling inspired enough to start investing in LINK, you should go ahead and do some research before you consider adding it to your portfolio. No matter how sweet it sounds.
Deciding whether or not to purchase LINK really should be about your investment goals. However, Chainlink has many interesting future-proof features that can potentially lead to more integrations. Simply put, it is a low-risk investment with potential returns.
Frequently asked questions
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