Ethereum in Everyday Life Part 1: ChainLink
Ethereum (price as of writing ETH $1,170) has been steadily gaining attention as 2nd most popular coin after Bitcoin, with a market cap of $113,918,354,133 USD (as of writing). Yet ETH was never designed as a currency, but rather as fuel for Decentralized Apps (DApps) to perform computations. In this 4-part article, we look at how some DApps are bringing Ethereum into everyday life, and what this means for the market as a whole. This article focuses on one of these DApps that we at CryptoGrinders believe is a crucial piece in making Ethereum a part of everyday life.
What is ChainLink?
ChainLink (price as of writing LINK $0.65) is a ‘middleware’ that helps to connect applications and servers to the Ethereum blockchain.
Smart contracts are gaining popularity as a means of replacing middlemen: with a smart contract, the terms of the contract are coded, and will trigger a ‘if-then’ response when conditions are met. Some examples of how smart contracts would work can be found here, but the gist of it is that it is trustless, and cannot be tampered with. It works admirably for some things, such as Initial Coin Offerings (ICOs), where the user is given a certain number of tokens in exchange for ETH. In such a case, the ‘if-then’ contract could be read as ‘if (number of ETH) is deposited to receiving account, then release (number of token) to sending account’.
However, it does have severe limitations when applied to the real world. For example, smart contracts would work amazingly for insurance: if a user gets into a car accident, then the amount the user is insured for is released to his/her bank account.
The problem is, it does not work that way: the smart contract has no way to connect to the information required to verify that the terms have been met. For example, was the user the one who caused the accident, or was he/she a victim? Was there alcohol involved?
Another issue lies with the structure of insurance companies these days: the pay outs are typically all in fiat, while the blockchain smart contracts deal with tokens. And the user would likely want the pay out to be transferred in fiat as well; it is not easy to convince the hospital that 1 ETH is payment for a stay in the ward.
Enter ChainLink, which is the bridge between these off-chain resources and smart contracts. ChainLink connects with Application Programming Interfaces (APIs), and allows smart contracts to gain information from these off-chain resources upon request.
In the case of the insurance pay out, the smart contract will first query off-chain resources (such as the hospital) for details regarding the incident. If conditions for an insurance pay out are met, the smart contract will then communicate that to the off-chain insurance company that a payment of USD is to be deposited to the user.
ChainLink is not just limited to insurance. It can be linked to many industries, such as financial, operations, and news industries, to make full use of smart contracts. For example, it can query for stock market prices, weather, supply chains, and many more, to execute contracts when conditions external to the blockchain are met. An example would be shipping, where payment for successful delivery is released when the ship has reached its location in real-time.
ChainLink nodes are the ones responsible for maintaining this connection to APIs. They set up a connection to off-chain resources, and are compensated for their efforts in LINK, the ChainLink token. When an on-chain request is submitted, they paid in LINK for each successful fulfilment of the query.
What Makes ChainLink Special?
ChainLink’s use-case proposition is impressive, but as with the case for many cryptocurrencies, it is one thing to sound good on paper, but a whole other ball game when it comes to execution. In this regard, ChainLink is ahead of the curve.
It has a partnership with the Society for Worldwide Interbank Financial Telecommunication (SWIFT). SWIFT allows information about financial transactions to be sent securely from one institution to another. As of 2015, there were more than 11,000 financial institutions in over 200 countries that utilise SWIFT as their secure way of communicating financial messages. Anyone who has done a wire transfer overseas will likely have needed a SWIFT code, and might be familiar with it already.
A partnership with SWIFT to create an oracle is a big step, and ChainLink’s partnership with them is a huge plus point when considering investment. SWIFT has been around for more than 40 years, with a huge network and excellent reputation, and a partnership speaks volumes about ChainLink’s potential and credibility.
Conclusion
When looking at an investment, it is always good to take a step back and consider the use-case of the cryptocurrency in the context of the world today, rather than considering them just individually. ChainLink has practical uses that can be implemented to bring Ethereum into everyday life. With a small but strong team and credible strategic partners, ChainLink is one project to keep a close eye on in the Ethereum ecosystem.
Stay tuned for the next article coming out tomorrow 2nd Feb 2018, where CryptoGrinders covers another major player in the Ethereum Ecosystem.
Safe investing!
Mike
1 February 2018
