How the Baseline Protocol Integrates Chainlink Oracles

Johann Eid
Sep 14, 2020 · 7 min read

In the world of co-operative global trade, where multiple international enterprises have to work together, how do we keep everyone on the same page? How do we synchronize business processes and reduce the overhead of maintaining separate systems of record without exposing confidential internal data? Those are the questions that the Baseline Protocol open standards community spends its time on.

In the use cases below, we illustrate how the Baseline Protocol can leverage Chainlink oracles to create a powerful new design pattern for reconciling multiple databases through a mainnet blockchain, while utilizing validated off-chain data through an oracle network like Chainlink.

The Chainlink and Baseline Protocol communities are offering these use cases to the developer community as the basis for prospective demos, POCs and production projects.

Chainlink Provides Validated External Data For Baselined Workflows

The Baseline Protocol is a technique for synchronizing multiple independent databases and enterprise backend systems like ERP/CRM systems, which would be involved in a shared business process using the Ethereum Mainnet as an always-on, immutable common frame of reference. Chainlink provides a decentralized method of retrieving and validating external data, both guaranteeing it’s accuracy and delivering it on-chain or into backend systems.

While Chainlink ensures secure and reliable data inputs to systems, the Baseline Protocol is focused on how multiple independent internal databases can be kept in a state of consistency. It does this using p2p messaging, digital signatures, hashing, and cryptographic proofs that prove each counterparty consistently used the same common set of records and functions throughout an entire business process without internal data leaving their respective databases or letting uninvolved parties know when state changes occur. A practical example would be enforcing the consistency and sequencing of a series of purchase orders between a buyer and supplier without leaking information that would allow unauthorized parties to know anything about the buyer and supplier’s relationship or their business activities.

Oracles can be important in this process, because without them, functions run by different counterparties can inject different parameters into functions, rendering them inconsistent. This is especially true for dynamic information sources like weather, time and price data. As a leading oracle provider and marketplace, Chainlink can ensure that each enterprise backend system involved in a multi-party contract receives the same external data as they execute shared functions.

So now that we understand the value of the baseline approach and Chainlink’s key role in it, what does this system look like in action?

Example 1: Baselining Purchase Orders Needing Weather Data

In the first example, we have a purchase order (PO) for bananas being baselined, which has a variable condition based on the cold-chain temperatures in which the bananas are being shipped. The reason for this is that the quality of the bananas may deteriorate quicker if they are subject to a certain temperature. Thus, it’s important for the retailer to track the state of the bananas to protect against the risk of paying full price for a spoiled shipment. As such, the following condition is part of the PO.

  • If the temperature > 13° Celcius at any point during the shipment, the retailer pays $0.48 USD per bundle
  • Else, the retailer pays $0.55 USD per bundle

In addition to cold-chain data from refrigerated shipping systems, the solution will track the weather at points where the bananas are exposed such as during initial container loading. The mean of three satellite weather data sources: NASA, NOAA, and OpenWeatherMap can be used. The counterparties also agree on the exact geographic location of the temperature reading and when the temperature reading is taken (at a certain time of day, the high, etc). They also choose to use nine independent, security reviewed Chainlink oracles; each data source is queried by three oracles to ensure against any availability or tampering problems.

Once a desirable oracle system is agreed upon, an aggregator contract is deployed through Chainlink, which outlines the job request, including the nodes involved, the time of the query, the data sources being queried, the aggregation method, and where the results are published. At the time of execution, the nodes query the off-chain APIs and feed the data points on-chain where they are aggregated together to form a single source of truth. This is then fed into the baselined systems of the participating parties. Once Chainlink’s threshold signatures feature is launched — a cryptographically secure form of off-chain aggregation — results can be aggregated completely off-chain and the output delivered directly into the backend systems of the enterprises.

The end result is that all parties involved have the same banana temperature data in their records and have the cryptographic proof on the blockchain that everyone else also has that same data. When it comes time to settle payments between parties, there is less of a need to hand-reconcile records since it is shared knowledge that all counterparty records are consistent. This opens up massive reductions in dispute overhead and paves the way for more reliable multi-party business automation based on reliable records and external reference data.

Example 2: Baselining Tokenized Invoices with Externally Sourced Interest Rates

Settling payments is a huge concern in many fields, not just supply chain and trade finance. At any given moment there are many billions in USD value locked up in various settlement processes, rendering it temporarily unusable. One of the ways enterprises unlock these funds is invoice factoring, where an investor buys the seller’s invoice. The seller gets immediate access to capital to fund other operations, while the investor charges an interest rate and turns a profit.

Blockchain technology offers a way to improve this process via the tokenization of invoices. Tokenization is simply repackaging an asset, which in this case represents the invoice as a blockchain token. Tokenization grants the ability to represent invoices as unique, hashed, and timestamped digital items on a shared blockchain ledger. This can reduce counterparty risk and thus expand markets and cut down settlement times.

In a baselined system, you issue only a cryptographic proof of the invoice on-chain with internal private databases holding the actual invoice data. Just as in the first example, the Baseline Protocol avoids any confidential data being held on a public blockchain while still offering the same authenticity guarantees through the on-chain proofs. But what happens when that invoice is subject to variable market conditions, such as fluctuating interest and foreign exchange rates?

Once again, we are encountering a data reconciliation inefficiency and security hole at the data input level, for which oracle providers like Chainlink offer a critical solution through the same design pattern as above. The counterparties are able to use Chainlink to create an accurate, tamperproof, and standardized method of pulling data from multiple data sources (e.g. interest rates from five leading banks) and aggregating it to create a single source of truth around the data input being used to calculate payments between them.

A New Design Pattern: Full Stack Data Synchronization Without Leaking Sensitive Data On-Chain

It’s not hard to imagine the wide variety of use cases where a business interaction is dependent on having a common frame of reference around external data inputs. In those cases, just as in the two examples outlined above, developers can follow the same general design pattern to maintain data consistency across the full stack of their baselined workflows.

Hopefully, this article has shed some light on the issues facing legacy systems of record, using the baselining technique to sync process flow and Chainlink to standardize the consumption of external data. Together they can reduce overheads from disputes and counterparty risk while allowing systems to maintain their existing database framework. If you would like to participate in the open-source development of these products or simply learn more, check out the resources below to start building today.

About the Baseline Protocol:

The Baseline Protocol is an open-standards and open-source initiative of the Ethereum-Oasis Open Project, run by the venerable standards body, OASIS. It is an approach to using the public Mainnet as a common frame of reference between systems. The approach is designed to appeal to security and performance-minded technology officers.

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About Chainlink:

If you’re developing a product that could benefit from Chainlink oracles or would like to assist in its open-source development, visit the developer documentation or join the technical discussion on Discord.

Chainlink is an open source blockchain abstraction layer for building and running decentralized oracle networks that give your smart contract access to secure and reliable data inputs and outputs. It provides oracles to leading DeFi applications like Synthetix, Aave, and Kyber Network; numerous blockchains such as Ethereum, Polkadot, and Tezos; as well as large enterprises including Google, Oracle, and SWIFT.

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