What is Chainlink (LINK)?
Chainlink is a decentralized network of oracles that verify and provide data from external sources for smart contracts in the blockchain. Which problem does it solve? What is its purpose? Let’s take a look together!
Chainlink is the largest provider of decentralized oracles in the cryptocurrency industry. The technology is particularly popular in the field of decentralized finance. Oracles are also used by large corporations that are unrelated to blockchain.
LINK is a native Chainlink token. It is primarily used to compensate node operators for their efforts, on which Oracles rely.
Who created Chainlink and when?
Chainlink was created by Sergey Nazarov and Steve Ellis.
The project was made public for the first time in 2017 when Nazarov and Ellis published a whitepaper. Chainlink was officially launched in 2019. The project was founded on the technology of decentralized oracles based on notes.
It was created in collaboration with Ari Jewels, a professor at Cornell University. He now works at Chainlink Labs, alongside the founders and other team members, on the project’s protocol and architecture.
Eric Schmidt, a former Google executive, joined Chainlink Labs as an advisor at the end of 2021.
Which problem do oracles solve?
Decentralized applications require smart contracts to function, but some business models require data outside of the blockchain. One of the major issues was the delivery and verification of off-chain data for smart contract execution.
Initially, oracles were in charge of this, but they were unreliable and centralized: their work was frequently controlled by the creator, and such an oracle was only used by one source of information. All of this resulted in a “point of failure” putting smart contract users in danger.
One example is operations which use instant loans. The centralization of data — in this case, the prices of crypto assets — has created the possibility of a smart contract exploit. As a result, in 2020, a hacker stole nearly $1 million in cryptocurrencies from the bZx protocol, which used only one Oracle Cyber Network.
Chainlink’s creators improved the technology by introducing decentralized oracles. Their main distinguishing feature is the lack of a single data source and resistance to manipulation.
A smart contract connected to the Chainlink network requests information from multiple oracles at the same time in order to obtain the most reliable data possible. As a result, decentralized Chainlink oracles are also referred to as consensus oracles.
How do Chainlink oracles work?
Chainlink is an oracle network that connects many nodes. The operator of a single node can deploy multiple oracles. Each oracle, in turn, can have multiple data sources.
Price data feeds (Chainlink Price Feed) are used by Oracles in their work. They enable smart contracts in decentralized applications to receive cryptocurrency quotes from centralized trading platforms. This is required when, for example, exchanging one crypto asset for another via a decentralized exchange.
The system depicted above for supplying data on crypto asset prices via oracles is divided into three levels:
1. Well-known aggregators — CoinGecko, CoinMarketCap, Cryptocompare and others — receive data on trades and prices directly from exchanges and other trading platforms.
2. These values are sent to the Chainlink nodes. They do not create blocks, but rather process requests and manage the work of oracles. When a request is received, it is answered by a group of suitable oracles chosen at random. They obtain the requested data from relevant external sources and transmit it to Chainlink.
Chainlink nodes are divided into two types: Core — accept requests from users, and Adapter — act as a “bridge” between the node and an external data source.
3. A special Chainlink Aggregating Contract compares and compares the data obtained by the oracles. When the nodes reach an agreement on the response, a single value is sent to the addressee, which is the smart contract of the decentralized application that sent the original request.
What data can Chainlink oracles deliever?
The technology of decentralized oracles is not only applicable to cryptocurrencies and finance. Chainlink, for example, announced a partnership with AccuWeather, a popular weather forecasting service, in the summer of 2021. As part of the collaboration, the platform sends data to decentralized oracles via Google Cloud.
As a result of this collaboration, Chainlink was able to attract another client. In the spring of 2022, the American Lemonade insurance platform, in collaboration with several blockchain projects, will launch a new climate risk insurance service for farmers. Instead of a traditional policy, the insurance buyer is a participant in a smart contract linked to the Oracle Chainlink.
In April 2022, the DeFi firm Truflation used Chainlink oracles to create its own US Consumer Price Index (CPI). Unlike the official index, which is calculated by the government, Translation uses an alternative calculation method, and Chainlink is responsible for the sources and reliability of information.
What other services does Chainlink have?
Chainlink oracles are capable of performing various functions that have a wide range of applications:
- A verifiable random function (VRF). The Chainlink VRF generates one or more random numbers and cryptographic confirmation for each request. VRF is used in application contracts where a random result based on a specific formula is required, such as in blockchain games and NFT. PoolTogether was the very first VRF game.
- Integration with the API — the Chainlink system provides smart contracts with the ability to connect to external data sources, including the API.
- Automation of smart contract functions and their regular maintenance with the help of “keepers” (Chainlink Keepers).
Which blockchain does Chainlink use?
Chainlink does not have its own network. The project nodes run on blockchains, which serve as the foundation for the applications they support. Chainlink was initially launched on the Ethereum platform. Oracles are currently working on the Solana blockchain and networks compatible with the Ethereum virtual machine, such as BNB Chain, Arbitrum, Optimism, Polygon, Avalanche, and Fantom.
Which companies and projects use Chainlink?
As of June 2022, the project ecosystem has more than 1300 projects.
Chainlink oracles use leading DeFi protocols: Aave, Ampleforth, bZx, Celsius Network, Loopring, Polkadot, Synthetix, Lido and others.
In February 2022, Bank of America named the Chainlink project as one of the primary reasons for the growth of DeFi. At the time, the oracles of the project were involved in DeFi applications, whose share in the total TVL indicator of the entire DeFi sphere exceeded 59%.
There are many large enterprises among the Chainlink node operators managing oracles: the Swiss telecom operator Swisscom, the German company Deutsche Telekom, as well as the Associated Press (AP) news agency.
What is Chainlink 2.0?
At the beginning of 2021, the developers published a white paper called Chainlink 2.0.
The authors of the document concentrated on the development of so-called hybrid smart contracts, as well as new ways to use Chainlink oracles to obtain additional opportunities on the network.
According to Chainlink co-founder Sergey Nazarov, the main feature of hybrid smart contracts is the combination of code running on the blockchain with data and computing beyond it.
Chainlink also intends to launch CCIP (Cross-Chain Interoperability Protocol), a cross-chain compatibility protocol that will serve as a global standard for messaging and communication between blockchains. CCIP aims to accomplish what the TCP/IP protocol did for the Internet by creating a single “Internet of blockchains”.
Why do we need LINK?
LINK is a token of the Chainlink project, issued in the Ethereum blockchain.
It is one of the TOP 50 cryptocurrencies in terms of market capitalization. The LINK token supply is limited to 1 billion tokens.
The crypto asset is required to pay for the work of oracles and serves as an economic incentive for node operators. LINK is also used to improve data processing accuracy and network contract stability.
Chainlink quickly gained popularity after its launch, and the price of its token rose. Only in 2020 the cost of LINK increased by several hundred percent all at once. Chainlink also has an active community of “LINK Marines” (LINK marines), who actively promote the project on social media.
At the same time, observers noted a high concentration of LINK: at the beginning of spring 2021, 81% of the total issue was concentrated in 1% of holders.
In May 2021, the LINK price peaked after the publication of white paper 2.0, but then began to decline. As of the beginning of June 2022, the asset is worth about $8.
Has the project been in any trouble?
In 2020, an information attack on the project occurred. Unknown individuals published a fabricated report on a fake website on behalf of the British bank Zeus Capital. Anonymous authors claimed in their work that developers were selling large quantities of LINK and predicted a drop in the token’s price. However, these allegations were not confirmed, and the value of the crypto asset increased.
A spam attack was carried out on several Chainlink nodes in September of the same year, with attackers sending massive requests for price data. According to Chainlink representatives, the attack was minor and had no impact on the network or oracles. Node operators, on the other hand, have spent money to pay Ethereum commissions.
What are your thoughts? If you have anything to add to the Chainlink topic, please leave your comments below!
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