Smart contracts have unlocked the black box of blockchain and provided the much-needed breakthrough in fintech. Through the code was cracked, it was confined only to the chain. These programs seriously needed a means of communication with the external world to function at its full potential. ChainLink is one of a kind project which filled this void and enabled various projects to communicate with the off-chain applications.
Recently, ChainLink has been doing rounds in the crypto community for its impressive performance in the market. ChangeHero will give you an overview of ChainLink and what sets them apart from the rest in this short post.
Oracles — Miracles
Simply put, smart contracts are pieces of code which incorporates the user agreements and processes the transactions automatically when the preset conditions are met. They are indeed a huge leap over the traditional contracts and financial systems, but they cannot pull in the data from off-chain environment or APIs. It’s because blockchains have a connectivity problem and cannot exchange information with the external world limiting its function.
This is where Chainlink comes in. Oracles function as a bridge between the blockchain and the real-world data. These enable a to and fro transmission of data extending the potential use cases of the blockchain technology. Chainlink is a decentralized oracle network that feeds data to the blockchains. The project was founded by Sergey Nazarov and Steve Ellis in 2014, interestingly way before Ethereum’s existence. According to their whitepaper, the project aims to provide a feasible solution to the connectivity issues of smart contracts. It is the first decentralized Oracle service that is on par with IBM’s middleware.
Chainlink uses a collection of independent nodes to collect the data from oracles. These nodes reply to the data requests or queries from the users through Requesting Contracts. On-Chain Architecture has three major types of contracts: Reputation contract, Order-matching contract and Aggregating contract. The first one checks the reputation of the oracle service provider through set performance metrics. Whereas the Order-matching contract collects the bids from the oracle providers based on the Service Level Agreement (SLA) parameters. It also selects the bid and confirms the oracle SLA through the Reputation contract. The major function of the Aggregating contract is to collect the responses from the Oracles provider and calculate the final collective result of the Chainlink query. In addition, it feeds in the metrics to the Reputation contracts. Finally, on-chain architecture also has three main steps, Oracle Selection, Data Reporting, and Result Aggregation.
Initially, ChainLink began offering oracle services to the Ethereum network. Off-chain, the project has a network of oracle nodes that process the data requests on the Ethereum Network. This network of nodes is powered by the ChainLink Core which handles the blockchain interactions, scheduling and communications with the external sources. These nodes can feed data from any kind of industry in real-time. This indeed is revolutionary and can unleash the full potential of smart contracts.
ChainLink takes a decentralized approach to deliver the oracle services. In addition, it provides a variety of features that adds an extra layer of security to the users.
Validation system: All the on-chain oracles are monitored and are provided with performance metrics which are based on the availability and Correctness of the Oracles. These facilitate the users in their choice of oracles.
Reputation system: It resembles the review system present in everyday businesses. This records and publishes the user ratings for the oracles which are based on their performance.
Certification services: To add more legitimacy to the oracle providers, the team issues certifications to the ones which have a reputation of providing high-quality services.
LINK is the native token of the ChainLink platform. The ERC-20 token can be used to pay the node operators that pull-in the data from off-chain data feeds. The prices for retrieving data will be set individually by the node operators considering the demand for the off-chain resources and supply of similar resources. Akin to the other cryptocurrencies, LINK token can also be stored and traded on all the major exchanges. LINK started 2020 with a massive bull run growing over two folds and reached an all-time high of $4.83 on February 16, 2020. As of writing, LINK is being traded at a price of $4.19 with a market cap exceeding 1.4 Billion Dollars according to CoinMarketCap.
Connecting the Unconnected
ChainLink is one of a kind project which expanded the possibilities of smart contracts. Its strong ties with SWIFT has also contributed to its success. Though the project is currently compatible only with Ethereum, Bitcoin, and Hyperledger, it is expected to extend its support to all the smart contract platforms in the future. With the help of decentralized oracle services like ChainLink, smart contracts will be able to connect seamlessly with the external world and can transform the way smart contracts provide services.