Chainlink In Its Early Cycle

What Is Chainlink?

Smart contracts have come to play an increasingly central role in the world of blockchain and decentralized finance (DeFi). Their implementation helps to realize the core aspiration of Bitcoin and other decentralized networks – namely, enabling people to make secure peer-to-peer (P2P) transactions by removing the need for intermediaries like banks or governments. 

Given the absence of a central intermediary, developers face the challenge of finding a way to provide smart contracts with the real-world data they ideally need to interface with in order to be able to execute more ambitious functions. This data can include eclectic information on matters as diverse as currency conversion rates, the weather, or even sports game scores. 

Chainlink is a decentralized oracle network that provides this much-needed stream of information to the smart contracts that run on various blockchains. It aims to make smart contracts an even more powerful tool by enabling them to draw on dynamic data inputs gathered from outside sources. 

This data, as hinted at, is diverse and can range from price feeds, supply chain management data, temperatures relayed from a smart sensor, scores from a football game – anything that is relevant to the given blockchain’s purpose. 

Chainlink doesn’t have a native blockchain. Instead, it integrates with multiple blockchains simultaneously, providing them all with up-to-date information streams. It acts not only as an oracle but also as an oracle aggregator. Chainlink purchases information from many data providers, which it then streams directly to blockchains. It is in the data providers’ best interests to only offer up accurate information, as a negative reputation score will result in their removal from the network. 

The Chainlink oracle network empowers blockchains like Ethereum, as well as the decentralized applications (DApps) that run on them, to access data and thus to make use of a bridge between the real world and secure blockchain environments. The oracles within the network collect, query and validate data from thousands of data sources and deliver it to Chainlink, which then feeds the dynamic inputs to the smart contracts. All of this facilitates a smarter, more connected blockchain ecosystem. 

he Chainlink blockchain can support the secure sharing of inputs, outputs, and computations. Some features of Chainlink include:

 
  • Supports decentralized data feeds: Data from many sources can be securely collected and used for hybrid smart contracts.
  • Provides verifiable sources of randomness: Applications such as games that require cryptographically secure randomness can use Chainlink.
  • Enables automation: Chainlink smart contracts can automate key functions and event-driven tasks for enterprises.
  • Supports cross-blockchain interoperability: Chainlink can connect blockchain platforms to support the exchange of messages, tokens, and specific actions
Chainlink was a pioneer in enabling off-chain data to be integrated with existing smart contracts. It has therefore built up a strong reputation and already has the support of several high-profile players in the blockchain and wider tech spaces. Among others, Huobi, Brave New Coin and Alpha Vantage have all begun to sell their data to Chainlink.
Since it is a decentralized and open source network, Chainlink encourages a large number of users to operate nodes on the network and rewards them in the form of its native LINK token. 

The small army of node operators enables the oracle network to feed information like pricing data to blockchains. 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. 

The Chainlink nodes have the essential task of securing and validating billions of dollars in transaction value (when translated to fiat). These funds are traded on DeFi apps like Aave and Synthetic, and are essential in providing by-the-second data. Additionally, Chainlink’s partnership with Google allows developers building on the Ethereum blockchain to gain access to massive amounts of information. 

Chainlink facilitates communication between blockchains and external data sources through the following steps:

  1. Chainlink matches oracles with blockchain operators that seek out real-world information in an automated process. It does this by using a service level agreement (SLA) software that lays out the terms and expectations that the blockchain users want. For instance, a developer on a blockchain may want his smart contracts to be populated with daily banking interest rate data. Chainlink will match the blockchain operator with oracles that can provide the most accurate information per their request.
The operator will submit the SLA along with LINK tokens to be held in the contract. These tokens will later be used to pay the oracles that deliver accurate information that satisfies the contract terms. 
  1. Once oracles are selected, they will get to work obtaining the desired data from an external source (e.g. a report of banking interest rates). The oracles will process this data and route it through Chainlink. Chainlink will aggregate the data and assess the results, while choosing the most accurate answers and discarding outliers. This ensures that the end user will only receive correct information.
  1. 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. For example, if interest rates are above a certain level, the blockchain could change the price of a digital asset based on that information.

Chainlink Oracles Bridge the On- and Off-Chain Chasm

This is where oracles come into play. An oracle is software known as ‘middleware’ that acts as an intermediary, translating data from the real world to smart contracts on the blockchain and back again.

However, a single centralized oracle creates the very problem a decentralized, blockchain-secured smart contract aims to solve — a central point of weakness. If the oracle is faulty or compromised, how would you know if your data is accurate? What good is a secure, trustworthy smart contract on the blockchain if the data that feeds it is in question?

So, let’s do a quick recap on smart contracts and oracles:

  1. Smart contracts are immutable and verifiable contracts that automatically execute in an IF/THEN framework when conditions are met.
  2. The data that defines these conditions has traditionally come from the blockchain.
  3. Recently, oracles have been introduced into the crypto ecosystem to bring off-chain data to on-chain smart contracts.
  4. But, centralized oracles diminish the benefits of on-blockchain smart contracts because they may be untrustworthy or faulty.

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How to Buy Chainlink 

Regardless of which exchange you are using, buying Chainlink is as easy as buying any other crypto. Just follow the steps below 

Step 1. Choose a suitable exchange

Chainlink is still relatively new, so you might not find it on some of your favourite exchanges. However, you can easily get from a credible exchange if you shop around a little. The right exchange for you will depend on your own preferences. Don’t forget to look at things like security, transaction fees and, of course, whether or not LINK is available. 

Some of our favourite exchanges that support Chainlink include Binance, eToro, and Coinbase. Some, like eToro, allows you to trade LINK with other cryptocurrencies, while others like BitPanda allow you to buy using fiat currencies. 

Step 2. Create an Account 

After choosing your favourite exchange, the next step would be to create an account. This is a simple step that you must complete before you can buy LINK. You will most likely be asked for some personal details, including contact details and perhaps a photo ID. 

The requirements will vary depending on the exchange you are using, but it shouldn’t be anything daunting. 

Step 3: Fund Your Account 

When you are done setting up your account and have completed profile information, you can now go ahead and deposit some funds. This is what you will use to buy LINK. You can either deposit fiat currencies or crypto depending on which is more convenient for your specific exchange.

Also, keep in mind that there might be a minimum amount of funds you can deposit. For instance, Binance accepts a minimum of $50 while eToro accepts a minimum of $200. 

Step 4. Purchase LINK

After funding your account, you can now buy your LINK tokens. The process of buying will vary from one exchange to another, but most are user friendly.

First of all, you will need to search for the ticker symbol of the crypto you want to buy. In this case, LINK. 

And then, depending on whether you are buying with crypto or fiat money such as USD, you will need to choose the appropriate trading pair. For instance, if you are buying with USD, you will choose the LINK/USD pair, and if you are trading with Bitcoin, you choose the LINK/BTC pair. 

Chainlink engineering tutorials

                     Step-by-step tutorials

We’ve compiled a series of tutorials designed to teach the basics of smart contracts and how to use them to consume data from the Chainlink oracle ecosystem.

Understanding Chainlink

Chainlink is a blockchain-based decentralized oracle network that was launched in 2017.7 Oracles are entities that connect blockchains to external systems, thereby allowing smart contracts to execute based on inputs and outputs originating off the blockchain.

While traditional oracles are centralized, Chainlink decentralizes the process of moving data on and off blockchains through the use of “hybrid smart contracts.”

 LINK tokens are used to reward Chainlink network operators for retrieving data from off-chain feeds, formatting data into accessible formats, and performing off-chain computations.

The Chainlink decentralized oracle network is a system of nodes that adhere to set protocols. Node operators are required to stake—agree to not trade or sell—their LINK tokens. Node operators set their own fees based on demand for the off-chain resource that they provide.

Because Chainlink allows blockchains to exchange data with off-chain systems in a way that is decentralized and tamper-resistant, the Chainlink oracle network has many use cases. Chainlink has been used to fairly distribute non-fungible tokens (NFTs), gamify personal savings, and facilitate recalibrations of cryptocurrency token supplies, among other applications.

Chainlink was created by Sergey Nazarov and Steve Ellis, who authored a 2017 whitepaper with Ari Juels.7 The network launched in 2019.12 LINK is an ERC-20 token, meaning that it is compatible with other currencies and smart contracts supported by the Ethereum platform.

Chainlink has grown from aggregating and providing cryptocurrency price data to DeFi protocols like Aave, to a lot more. The ecosystem currently access over 1B data points, securing over $75B in value through 1,000 project integrations with 700 oracle networks. Mainstream organizations like AccuWeather, FedEx, FlightStats and the Associated Press have partnered with Chainlink for data verification. However, one of the biggest wins Chainlink have secured is onboarding Eric Schmidt, ex-Google chairman and CEO, as a technical advisor to the oracle network protocol. According to Schmidt, “Chainlink is a secret ingredient to unlocking the potential of smart contract platforms and revolutionizing business and society,” and he is interested in helping Chainlink build a world powered by truth. Schmidt joins other notable Chainlink advisors including former LinkedIn CEO Jeff Weiner and DocuSign co-founder Tom Gonser.

On the roadmap for 2022, Chainlink will finally rollout staking for LINK holders to secure the network and earn rewards. Chainlink has been working on a staking solution for years, however oracle networks are not a blockchain but a form of decentralized computing. Co-founder Nazarov explained that Chainlink does not produce blocks but “make consensus on hundreds of oracle networks about price data.” He says the team is finally satisfied with the security and scalability of the consensus mechanism and ready to launch staking this year.

During the initial coin offering (ICO) for LINK in September 2017, Chainlink announced a total and maximum supply of 1,000,000,000 LINK tokens. The current supply is about 453,509,553 LINK tokens, or about 45% of the total supply, as of end-September 2021. The Chainlink price at ICO was $0.11 and a total of 350 million LINK tokens were sold. This represents an over 200X from the ICO price to Chainlink price today.

Chainlink price experienced a massive bull run in the period around mid-2019 to mid-2020. Chainlink bulls were colloquially referred to as “LINK Marines,” becoming a well-known meme in the crypto community. Chainlink price reached an all-time high of $52.88 on May 9, 2021, on the back of an overall crypto market rally, as well as ongoing developments in the Chainlink ecosystem.

According to the ICO documentation, 35% of the total token supply will go towards node operators and the incentivization of the ecosystem. Another 35% of LINK tokens were distributed during public sale events. Lastly, the remaining 30% of the total token supply was directed towards the company for the continued development of the Chainlink ecosystem and network.

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Is Chainlink A Good Investment?

Chainlink solves one of Blockchain’s biggest nuisance: the interoperability between on-chain and off-chain services. This makes it not only a valuable but also a practical piece of technology. As a result, when Chainlink’s concept finally sees mainstream adoption, most if not all of the blockchain-based cryptocurrencies will be using it to accept data and important information from the outside world. 

However, being a cryptocurrency, Chainlink is still highly volatile, as we have gathered from the price history above. While the asset has recorded huge gains since the start of 2020, it is still unstable and, therefore, a risky investment. 

This does not mean that Chainlink is a bad investment per se. All cryptocurrency investments are risky but could also lead to potentially massive gains. Chainlink’s underlying oracle technology puts it in a good position to be a valuable investment. As cryptocurrencies keep evolving, Chainklink will record more use cases and advertently boost its price. 

Soon, the stability and viability of cryptocurrencies, in general, will be underpinned by Chainlink’s technology. When LINK finally becomes an industry standard, its early investors might enjoy enviable profits. 

In terms of long term monetary gains, Chainlink is not badly off. For instance, if you had invested only $1,000 around 25th March 2020 when LINK was selling at $2.33 per coin, you would have gotten around 430 Chainlink tokens. Now, if you sold that in early May 2021 when the price went above $50, you would have made a profit of more than $20,000 in about a year. 

This might not be as lucrative as other fast-growing cryptos, but it is still no small gain

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