Release Date: 19 September 2017
Official Website: https://chain.link
What is Chainlink?
Chainlink is one of the most recent cryptocurrencies to hit the market . It also happens to be one of the smartest uses of this technology; Chainlink serves to provide tamper-proof inputs and outputs for complex smart contracts on any blockchain.
Many of you won’t know what any of that means, so allow us to explain. A smart contract is essentially a program that helps dictate the transfer of different cryptocurrencies between different parties. It sets specific conditions, and the contracts themselves are stored within a blockchain.
Usually, these smart contracts are created using tamper-proof data. So, why is Chainlink even required? Well, tamper-proof contracts only exist within the blockchain environment. The problem with this is that a lot of people use regular FIAT currency to purchase cryptocurrencies. As such, these transactions can now be viewed and verified by just about anyone. Also, smart contracts aren’t connected to data in the ‘real world’.
This is where Chainlink comes into play - it wants to solve this significant issue. It allows smart contracts to be connected to the broader world outside of blockchains. As a result, these contracts can handle fiat currencies (any currency that’s considered legal tender, e.g. USD) and keep all the significant data in sight.
How does Chainlink work?
The main problem is that smart contracts don’t have access to their own data. When a contract is implemented, there’s an issue with connectivity. It can’t link to other external resources and data outside of the blockchain environment.
Thus, a solution was created; Oracles.
Effectively, an oracle is a gateway that lets smart contracts connect with data inputs and the outside world. The issue with this is that there’s a high chance of failure and a good degree of unreliability involved. Contracts are connected through things called oracle nodes. Each one goes through one node, so the contract is only really as reliable as that specific node. If the oracle ends up going down, then the contract loses all of its functionality.
To combat this, Chainlink has created a decentralised oracle network. This offers users the very best security and ensures the contracts remain safe and tamper-proof. The idea is relatively simple; you use multiple Chainlink oracles instead of relying on one.
What are the benefits of Chainlink?
Immediately, those of you with a keen eye can see the benefits that this decentralized oracle network offers.
Eliminating single points of failure - with a typical single node oracle, you have a point of failure. When the node goes down, the contract goes down and doesn’t function anymore. If this happens on Chainlink, then it’s not an issue. When a chainlink goes down, the contract uses a different oracle to maintain its functionality.
Secure & trustworthy - smart contracts remain secure and trustworthy on the Chainlink network. Every oracle that’s created on the network has an incentive to be open and honest. When bad data is posted, the person who created the oracle will lose money. As such, they won’t get requests from smart contracts in the future, so they suffer. This ensures the trustworthiness of the network!
Improved data accuracy - the data provided by Chainlink is far more accurate than the previous single oracle method. Why? Well, any data is run through lots of different oracles. Each one looks at it, then provides their own answer to queries, etc. It’s a multiple heads are better than one scenario; the information is agreed on by all oracles, so the contract gets accurate data all the time.
A shaky start
Chainlink has broken into the top 20 cryptocurrencies on the market (if arranged by market cap). If you look at a market value chart, you’ll see it boasts a steady upward curve.
In fact, it was one of the few currencies that saw growth during the crypto winter of 2018 and 2019, although very recently It has seen a drop in the previous month or so, but it currently sits between $2 - 4.
However, things weren't always so rosy. In the beginning, Chainlink suffered a a false start. The idea behind it has always been sound - smart contracts need a more secure and tamper-proof method of communicating with resources outside of the blockchain network. But, the execution of the initial launch failed.
Upon its launch, LINK only worked for 10 minutes. Many people accused the creators of cheating, so everything got shut down before it even had a chance to get going. Of course, changes were made, and LINK was finally trading on the market in September 2017.
Since then, things have moved quickly from strength to strength. Now, Chainlink is considered a smart cryptocurrency investment because of the technology and uses behind it.
Chainlink key uses
The whole purpose of Chainlink is to help bridge the gap between smart contracts and the real-world. If you wanted to access data that didn’t exist on the blockchain system, then Chainlink lets you submit a contract request.
From here, the Chainlink network takes these requests and turns them into contracts that are matched to oracles that are deemed the most appropriate for you. You can use Chainlink for the following types of contract:
Reputation contracts: This type of contract will check different oracle provider’s track to see if they’re authentic or not. Basically, it helps confirm a good or bad reputation for the user.
Aggregating contracts: Here, you can use this contract to collect data from all of the oracles you’ve chosen. The data is then balanced out, and you effectively get an average view of it, which leads to more accuracy.
Order-matching contracts: With this contract, you pretty much have something that keeps a log of your contract agreement. This log is stored on the network, then different oracle providers bid on it.
Key features of Chainlink
Of course, we’ve already spoken about the main feature of Chainlink. So, we’ll avoid repeating ourselves by not talking about the way it connects blockchains with off-blockchain applications.
Instead, we can look at a few of the other features that make this one of the most popular cryptocurrencies right now:
Chainlink allows for transactions to be made a lot quicker than before. This is because it uses a more secure oracle network that’s not reliant on one single node.
A decentralized currency system means all of your LINK is free for you to use as you like. No government regulations apply, which allows you to buy and sell as you please.
All external information that comes into the blockchain and smart contracts will pass a full security scan. As such, this keeps data protected and results in tamper-proof contracts.
Lastly, the oracles themselves also add security protection for transactions. Each one is safe, meaning your LINK is safely moved between two parties.
When you first start looking at Chainlink, it can seem rather complex and difficult to understand.
There’s an initial period where you try and get your head around what’s happening. But, you eventually start to see what it does and how it works. Smart contracts are never truly tamper-proof if they need to communicate with things outside the blockchain domain. So, with Chainlink, a secure connection can be established. It removes the oracle problem of relying on one node to link smart contracts to the wider world.
This leads to fewer failures, more secure payments, and truly tamper-proof smart contracts.