Table of Contents
Chainlink is a decentralized network that bridges blockchain-based smart contracts to real-world events and external data sources. This network enables smart contracts to access a broad array of information such as current data, weather patterns, and price changes that can trigger intelligent contract actions. Chainlink relies on an independent network of nodes to transmit data to smart contracts securely and reliably, and it plays a vital role in the expanding decentralized finance (DeFi) environment. The network rewards node operators with the LINK token for providing off-chain data to the network.
Key Takeaways
Chainlink is a decentralized network that connects blockchain-based smart contracts to real-world events and external data sources. This enables smart contracts to access a broad range of information, including current data, weather patterns, and price changes.
Chainlink relies on an independent network of nodes to transmit data securely and reliably, and it plays a vital role in the expanding DeFi environment.
Node operators are rewarded with the Chainlink token (LINK) for providing off-chain data to the network.
Chainlink’s hybrid smart contracts combine on-chain and off-chain elements to enable the execution of complex logic, allowing for the creation of sophisticated financial instruments and protocols beyond the reach of traditional on-chain smart contracts.
The Chainlink network was founded by Steve Ellis and Sergey Nazarov in 2014. Nazarov serves as the CEO of Chainlink Labs, while Ellis is the Chief Technical Officer. They believed that blockchain technology could transform the way smart contracts accessed and used data, but recognized that blockchain smart contracts had limits since they could only access data stored on blockchains. As a result, these folks created the LINK network to enable smart contracts to access external data through decentralized oracles. Since its inception, Chainlink Labs has worked to enhance and develop the network, and it has now become an essential part of the expanding decentralized finance (DeFi) landscape.
How does Chainlink work?
A short breakdown of how Chainlink works:
Chainlink operates through smart contracts. These contracts specify the terms of agreements, including financial asset prices and event outcomes. The contracts request specific data from external sources through the Chainlink network. The network then sends this request to oracles, who retrieve the data and return it to the Chainlink network. The network verifies the data and then sends it to the smart contract for execution. Data providers can include individuals or organizations with access to data sources, such as APIs. They offer data to the LINK network to ensure its reliability and security.
Decentralized Oracle Network
Decentralized networks of oracles compose of independent nodes that link blockchain-based smart contracts to external data sources and real-world events.
These networks are fully decentralized, which ensures they are not subject to the control of a single entity and are instead maintained by a network of independent nodes. This makes the networks more secure and reliable, as they are tamper-proof and censorship-resistant.
Chainlink oracles operate as intermediaries between the blockchain and the physical world, allowing smart contracts to interact with real-world data and events.
For delivering high-quality data to the network, oracles are compensated with LINK.
Decentralized oracle networks are an integral part of the DeFi ecosystem. They facilitate the creation of sophisticated financial instruments and protocols beyond the reach of traditional on-chain smart contracts. Other industries also utilize them. These include supply chain management and prediction markets, where they ensure dependable and secure access to real-world data.
Hybrid Smart Contracts
Smart contracts are contracts that are self-executing and contain the terms of an agreement written directly into code. They allow for transactions that are transparent, efficient, and secure, without the need for intermediaries. However, smart contracts have limitations in that they can only access data stored on the blockchain.
Chainlink’s hybrid smart contracts are a combination of off-chain and on-chain elements that allow for complex and customizable interactions. These contracts enable the execution of complex logic that is not possible with traditional on-chain smart contracts, while still maintaining the security and trustlessness of the blockchain.
The decentralized oracle network connects hybrid smart contracts to external data sources and real-world events. This allows access to a wide range of information such as prices, weather data, and other real-time data, which can be used to trigger actions within the contract.
Hybrid smart contracts are particularly useful in DeFi as they enable creating complex financial instruments and protocols that are simply not possible with traditional on-chain smart contracts. This enables innovative DeFi applications that offer greater functionality and flexibility to users.
Chainlink Development
The team behind Chainlink Labs manages the LINK token and develops the network to provide data to smart contracts. Sergey Nazarov and Steve Ellis co-founded the company in 2014, recognizing blockchain’s potential to revolutionize smart contract interactions with external data. Since then, Chainlink Labs has been actively developing and enhancing the Chainlink network, which is now a crucial component of the DeFi ecosystem.
Apart from overseeing the network, Chainlink Labs also provides educational resources and tools to help developers build on the Chainlink’s platform. These include libraries, documentation, and other resources that facilitate the integration of applications with the network.
In late 2021, Chainlink introduced a new feature called LINK staking that aims to promote sustainable growth and security. With LINK staking, ecosystem participants, including community members and node operators, can increase the security of Chainlink’s oracle services by backing them through LINK tokens that they stake. This is similar to other Proof-of-Stake (PoS) networks, where participants have to lock up tokens to contribute to network security. By introducing staking, LINK is practically enhancing the security of its oracle network with a new layer of “crypto-economic” security.
Chainlink FAQ
Who created Chainlink?
Sergey Nazarov, a well-known figure in the blockchain industry, led a team that first came up with the idea for Chainlink in 2014. LINK was created by SmartContract, a company that Nazarov currently heads as CEO. The project launched in 2017, and the team has been working to improve the technology for greater security, reliability, and ease of use ever since.
What makes LINK unique?
Chainlink is a network that enables the integration of off-chain data into smart contracts. It has established itself as a leading player in the industry of data processing with many trusted partners. Because of its ability to integrate off-chain data, LINK has become a popular choice for a wide range of data providers, including Brave New Coin, Alpha Vantage and Huobi. These data providers could sell the access to their data directly to Chainlink, allowing their information’s monetization.
As a decentralized network, LINK provides an opportunity for users to act as node operators. They earn revenue by running critical data infrastructure required for the success of blockchains. Through a large collection of node operators, LINK powers a range of decentralized Price Feed oracle networks. They currently secure billions in value for top DeFi applications such as Synthetix, Aave, Compound and more.
What are the use cases for LINK?
Chainlink offers versatility across multiple industries, with potential use cases that include:
Decentralized finance (DeFi): LINK allows the creation of sophisticated financial instruments and protocols, providing users with greater functionality and flexibility.
Supply chain management: By leveraging Chainlink’s network, it’s possible to track the movement of goods and verify product authenticity. This enhances transparency and trust in supply chain processes.
Identity verification: LINK can be of use in creating decentralized identity solutions that resist fraud, providing secure and reliable identity verification.
Internet of Things (IoT): The network can securely and reliably connect IoT devices to the blockchain. It enables the creation of decentralized applications and protocols that interact with the physical world.
Where do I buy Chainlink (LINK)?
Users can easily buy and sell Chainlink sold through exchanges that enable its trading: Binance, Coinbase and Kraken. Its market cap and circulating supply determines the Chainlink price.