Chainlink - The One Crypto Without Any Real Competition.
What is Chainlink?
Chainlink is a blockchain abstraction layer that enables universally connected smart contracts. It’s a decentralized oracle network that provides smart contracts a tamper-proof, highly available connections to all of the world highest quality data feeds. A smart contract can use Chainlink to access data like financial markets and pricing, weather, sports outcomes, IoT sensor readings, and any other real-world verifiable data required to allow more robust and usable blockchain-based applications.
Smart Contracts & Decentralized Applications
A smart contract without an oracle is like an airplane without wings. Oracles deliver indisputable truth about the outside world to decentralized applications. Smart contract apps based on the blockchain are transforming the way the world transfers assets and facilitates agreements. These blockchains have network of validators, who purposefully limit their connection to outside world. Smart contracts require an additional piece of infrastructure, the oracle, in order to safely obtain data from the outside world.
Because smart contracts govern billions of dollars in value, the data that controls them must meet the highest possible quality criteria. This can’t be compromised. Smart contracts must eventually be able to employ the same decentralized computing guarantees that safeguard the blockchain to safely obtain and validate data.
This means that blockchain cannot rely on any centralized source of data, since this might jeopardize the smart contract’s whole security architecture — how? By perfectly executing the wrong action.
For example, if a smart contract pays out based on the outcome of a sporting event, any misreporting of that event from a central source, will invalidate the contract’s integrity. Or, if such a central source was hacked and modified, even if just momentarily, for the oracle to broadcast incorrect information to the smart contract in order to deceive it into getting a payment.
Because smart contracts are self-executing, they pay out whenever criteria are satisfied, and this cannot be overturned.
How Does Chainlink Work?
When it comes to real-world data being communicated through the blockchain, Chainlink aims to eliminate “bad actors” and “mistakes.” To do so, Chainlink uses LINK, its cryptocurrency, to incentivize data accuracy, to keep contracts stable, and to reward nodes for their work in validating transactions.
Oracles of Chainlink & LINK token
- Chainlink gathers information from network of oracles, discards outliers and passes consensus to smart contract to ensure validity.
- Chainlink matches oracles with blockchain operators in an automated process that can provide the most accurate information per their specific type of request.
- Operator will submit Service Level Agreement (SLA) with LINK tokens to be held in the contract and later be used to pay the oracles that deliver accurate information that satisfies the contract terms.
- Multiple nodes will take requests for data and facilitate communications with real-world data providers. When they have the desired data, they report back to the Chainlink Aggregating Contract to compare answers. This all allows for the best balance of accurate information by averaging answers.
- Nodes will validate transactions based on how many LINK tokens they have staked on the network.
- This new information will be routed through Chainlink to the operator’s blockchain. It will then be input to the smart contracts to make changes according to the updated and reliable information.
First Mover Advantage
Chainlink was the first to make it possible to incorporate off-chain data with current smart contracts. Chainlink has become the most extensively utilized and trusted decentralized oracle network as a result of its first-mover advantage, securing billions of dollars in value for live applications across many blockchains.
Chainlink Ecosystem & Partnerships
Chainlink has partnered with over 60 data providers, including Accuweather, SportsDataIO, Associated Press; utilized by majority of blockchains; over 500 DeFi applications; over 200 NFT marketplaces; with major corporations, such as Google, Oracle, Intel & AWS; with over 200 games; and many other partnerships. The majority of these collaborations took place in 2021.
Chainlink in Practice
Stablecoins, such as USDC or Tether on blockchains require price oracles to know what price they are targeting. Stablecoins have a market valuation of over $140 billion and are rapidly expanding.
Chainlink will make it possible for blockchain synthetic assets to mimic real-world financial assets like stocks and commodities.
Blockchain technology have enabled the creation of decentralized prediction markets that can operate without being controlled by a single party or operator. Due to the very nature of blockchain-based prediction markets, they are reliant on external data to settle outcomes. Some of the potential datasets include sporting events results and political election outcomes to name a few.
With Chainlink powered data feeds, insurance companies are able to offer weather coverage without all the downsides and inefficiencies that afflict traditional insurance agreements, including fraud, corruption, and delays.
Randomness is key to generating unpredictability and fairly distributing in-game items, both of which enhance the gaming experience. With a recent launch of Chainlink’s VRF, meaning Verifiable Random Function, it enables to create a meaningful and equitable game, with a much required source of randomness.
A supply chain begins with material procurement and finishes with the delivery of items to the final client. Payments are exchanged, ownership transfers, customs clearances, regulatory oversights, and documentation are transmitted between parties along the way. Smart contracts provide a solution to automate key procedures in global commerce, decreasing friction and counterparty risk. Supply chain smart contracts may be linked to online APIs, cloud networks, and a variety of real-world sensors including GPS, temperature, velocity, acceleration, humidity, brightness, and more using Chainlink oracles. This information may be used to trigger payments and data transfers between partners in a way that no one participant in the supply chain can influence.
The metaverse economy will facilitate user-owned value transfers and host financial tools such as lending, borrowing, insurance, and more. Chainlink price feeds give blockchain-based projects access to robust and secure price data that helps the entire metaverse economy build on each others’ success, while Chainlink Data Feeds can deliver important outcomes to be cemented on underlying blockchains, such as establishing transfers of in-game metaverse items, rewards, and more to the user’s desired blockchain.
Due to the large range of payment preferences seen throughout the world, smart contracts require access to a wide range of payment choices in order to meet worldwide demand. Chainlink’s ability to transmit outputs from smart contracts to external APIs allows it to support a wide range of payment services.
The more we rely on smart contracts as a civilization, the higher the need for LINK will be. Consider the following supply and demand economic model of price determination in the market:
LINK have maximum capped supply of 1 Billion. Because LINK tokens are used to pay node operators and deposit contracts, they are effectively removed from circulation. When LINK tokens are taken out of circulation, there is a scarcity of supply, and while demand is steady, the price rises.
We can foresee a significant need for decentralized oracles with the quick expansion of DeFi, blockchain games, NFTs, and now Metaverse. For the time being, Chainlink has the number one spot, and unless someone else comes along and creates a superior decentralized oracle, Chainlink will continue to rule the market as long as smart contracts and blockchains exist.
Chainlink is now trading at $19, with a market capitalization of $8.8 billion. Chainlink is a promising system that appears like it will continue to add interesting improvements to the crypto and blockchain world, and with hardly any competition, it has the potential to achieve a market valuation of $50 billion, or $90 per LINK, in the next 5 years.
DISCLAIMER: The information contained in this article is for educational purposes only and does not constitute any form of advice or recommendation by Wheatstones, and is not intended to be relied upon by users in making (or refraining from making) any investment decisions.
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