Chainlink Explained

Chainlink (LINK) is labeled by many experts as a crypto token with a lot of potentials. It isn’t a coincidence that the price has gone up several times in the recent years. Due to the increasing interest, we thought it was high time to dive deeper into this token. After doing our research, we understand why the experts are so enthusiastic about this coin. We have put together the most important information for you and explain how this crypto token works!

What is Chainlink (LINK)?

Chainlink is a platform that wants to make smart contracts available to the whole world. The crypto project firmly believes that smart contracts offer a great solution for many industries because it can take over unnecessary tasks from humans (see the previous article about Ethereum). Unfortunately, they also see that smart contracts cannot communicate effectively with external systems. They want to do something about this shortcoming.

They want to connect both different blockchains and external systems. They do this by giving smart contracts access to resources such as data feeds, web APIs and traditional bank details. These resources are provided by the affiliated bodies that can use smart contracts in return. This means that they do not have to switch to a new system, and they can still use smart contracts. In addition to the fact that they can use these smart contracts, they also receive a reward in the form of LINK tokens for supplying data and APIs. When a party does this, they are called Chainlink Node Operators. They are responsible for maintaining the connection between the API and the Chainlink network. The Chainlink network consists of all connected Node Operators.

Why is this new?

Right now, the current structure of smart contracts is not yet properly set up. The smart contracts are based on information that is protected on the blockchain. As a result, smart contracts cannot yet communicate with external resources such as data feeds, APIs and traditional banking systems.

This problem is normally solved using an ‘Oracle’. Chainlink comes with a secure Oracle network that is completely decentralized and runs on blockchain technology. Through this Oracle network, smart contracts can communicate with each other and blockchains and external systems can be connected to each other.

What is an oracle?

An oracle provides the external data that is required to perform a smart contract. It monitors the events from the real world and sends the information to the blockchain so that this data can be used. In the image below you can see that different data is sent to Chainlink. Now, as you can see, Bitcoin, Ethereum and Hyperledger are supported by the network.

chainlink partners

An example of an oracle within a smartcontract

Let’s assume there is a smartcontract that says, ‘When I receive 10 bucks from Joe, then I will pay my Netflix subscription’.

My bank in this situation will share my bank details to the Chainlink network (with an API for an example) and now the smartcontract knows exactly when I receive the 10 bucks. The moment Joe sends the 10 bucks to my bank account, the contract will be executed immediately (just like how a vending machine exactly executes your order the moment you put the correct amount of money).

Downside central oracles

Right now, oracles are still centralized entities that are managed by people. As a result, you do not know whether the data that comes from the oracle can be trusted. It is extremely important that this data is accurate and confidential since smart contracts are blindly executed based on the data supplied.

Imagine that you have a smart contract for trading in Bitcoin. You put in the contract when Bitcoin tops the $ 10,000, then I want to sell my coins. The price is dropping towards $ 8,000 but the oracle reports that the $ 10,000 has been tapped. Because of this, your smart contract will sell your Bitcoins and it will go completely wrong. You, therefore, want the data supplied to be reliable and very accurate.

Since the oracles are still central in nature at the moment, we all must trust that these parties mean the best for us. However, if a shady party is involved, this can cost us a lot of money in the case of the Bitcoin trade. In addition, the entire trust in oracles will also be damaged and the function of a smart contract will no longer be interesting.

According to Chainlink, it is therefore of great importance that oracles acquire a decentralized character. As a result, trust is no longer with a central party and the chance of a shady smart contract is considerably lower.

chainlink info

The Chainlink token

The LINK token is used within the Chainlink ecosystem. This token is used to pay for Node Operators. The value of the LINK token has to do with the number of operators working. The more nodes, the more the token will be used, and the price will rise.

Reputation system

Chainlink works for its Node Operators with a reputation system. The Node Operators who have staked LINK tokens for a certain time will receive the larger smart contracts. If they fail to provide enough information for these contracts, they will lose part of their tokens. For investors who ‘HODL’ the LINK tokens, this is a positive thing. The more tokens are staked, the fewer there will be in circulation and the higher the price can rise.

ICO of Chainlink

During the ICO at the end of 2017, the team raised 32 million dollars. This was also the target amount that they had set in advance. The token was issued as an ERC677 token. This is a token that is based on the Ethereum blockchain with the extra possibility to send data. It also means that Chainlink is blockchain agnostic: if Ethereum fails to be the biggest smartcontract platform, Chainlink can always be used in other blockchains too. This makes Chainlink not dependent on Ethereum.

In total, the crypto company issued 1 billion tokens for which:

  • 35% is intended for the Node Operators
  • 35% for the ICO investors; and
  • 30% for the development of the platform.

Roadmap

Chainlink has no official roadmap. They indicate that Chainlink is busy making a new technology that is very complex. If they put pressure on themselves, this may cause unnecessary mistakes to be made and this may compromise the security of the network. For this reason, they choose not to follow a roadmap. You can, however, keep an eye on their progress via the Chainlink Github. This is an open-source code base.

Partnerships

chainlink oracle network ecosystem

So, let make a resume:

The 6 points below summarize Chainlink well.

  1. Chainlink makes it possible to connect smart contracts with the real world.
  2. Financial institutions and companies can use smart contracts via the Chainlink network without actually having to switch to smart contracts themselves. This allows them to profit from decentralism in an accessible way.
  3. Authorities receive LINK tokens for supplying data and web APIs. Chainlink can create a decentralized oracle by means of smart contracts, supplied data, and the LINK token.
  4. The LINK token is based on the Ethereum blockchain and will not experience a token swap.
  5. Chainlink is blockchain agnostic.
  6. Chainlink has huge partnerships including names as ‘Google’, ‘Swift’ and ‘Intel’.

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