Chainlink Connects Off-chain Data Securely Onto the Blockchain.
Not even Batman can do it alone every time. He has a long history of training and partnering with sidekicks. While the Dark Knight is secretive and brooding, even he recognizes that a fresh mind can help him solve super-crimes.
Ethereum on its own is powerful, with even more utility than Batman has on his belt, but it too benefits from the reliability and perspective of a sidekick.
Chainlink is an Oracle.
An oracle helps read and process through many bits and bytes of information and metadata that come off the chain. Chainlink is an ERC-20 token that helps secure and process off-chain data. For example, it could analyze and source data on sports statistics onto the blockchain. Then, this data can be incorporated into an NFT that provides perks that are dependent on these statistics.
This increases the capacity and scale of the Ethereum network without compromising on security. In fact, some argue that Chainlink and similar oracles are crucial for scaling decentralized networks.
This established oracle token is worth looking into and probably will prove to be worth buying into as well.
The Promise of Chainlink
Connecting Smart Contracts with the Outside World
Ethereum is the second-most popular cryptocurrency by market size and with the boom of NFTs and DeFi, it experiences heavy traffic. With so many people rushing to use the network, there is a lot of information that needs to reach smart contracts. The smart contracts themselves exist on the blockchain, meaning they will only interact with other information within the ledger. It can facilitate DeFi contracts and the swapping of assets but cannot add in dynamic real-world data that exists elsewhere.
For example, many NFTs link to a JPEG stored elsewhere on the internet; other utility-based smart contracts will need to update themselves at certain intervals. How do smart contracts, especially those built on Ethereum, assess and validate the veracity of data being called onto the blockchain?
This is by no means unique to Ethereum, as other cryptocurrencies are recognizing their limits amid greater adoption. The blockchains that figure out the solutions to these scaling problems will undoubtedly thrive.
The Solution: An Oracle for Scaling
Chainlink acts as a service, connecting smart contracts on the blockchain to nodes within its off-chain network. Basically, Chainlink is an oracle that helps decide which data is legitimate and trustworthy, passing it along to the blockchain without the need of any third-party apps. It speaks the same language as the blockchain, meaning that the information it passes on doesn’t require any translation.
A More Technical Summary
There are three steps to bring outside information onto a blockchain.
The first step is Oracle Selection — picking a set of nodes or computers that will validate data before it gets to the smart contract. The Chainlink user drafts up a Service Level Agreement that lays out exactly what kind of data needs to be processed; this is secured with the deposit of LINK into an order-matching contract. Here, different nodes submit bids for doing this job, citing their credibility.
The next step involves these different types of oracles connecting to external data sources to get the data or solve the problem that has been asked of them. This data is sent back to the contracts using Chainlink.
How does the network decide between oracles? Here, the results are tallied, giving a weighted score for the data validity. The Chainlink network will use this to determine which sources are trustworthy and accurate, protecting the smart contracts from any attacks. The node/oracle operators are then rewarded with LINK, doled out if they provide accurate data.
A Brief History of Chainlink
Chainlink was developed by a startup called SmartContract, which was founded in 2014. The goal is simple: Make smart contracts easy and secure. These algorithmic contracts often require a lot of data that needs to be weighed to determine whether the requirements for the contract are fulfilled. Chainlink provides an efficient method for delivering this information, allowing many different types of industries to make use of these capabilities.
It is a Proof of Stake blockchain, where people who hold LINK can stake it within the network to participate in validating transactions. The more LINK one holds, the greater the chance that they are allocated transactions and data to verify.
Meet the Co-Founders
Sergey Nazarov, Co-Founder & CEO
Nazarov has prior experience within the space as the founder of the crypto Secure Asset Exchange and also is the founder of the decentralized email service, CryptoMail. He is also one of a select group of people suspected to be the enigmatic founder of Bitcoin.
Steve Ellis, Co-Founder & CTO
Ellis worked with Nazarov on Secure Asset Exchange and also has experience with software engineering, working at Pivotal Labs in the past.
Ari Juels, Co-Founder & Advisor
Juels is a computer science professor at Cornell Tech and the director of IC3 who was part of the original founding team. He is also listed as a contributor on Chainlink’s whitepaper.
From ICO to Today
Chainlink launched its initial coin offering in September 2017, raising $32 million, selling 350 million tokens out of a total supply of 1 billion. The rest of these tokens are allocated towards future development or sent as rewards for securing the decentralized oracle network. More than 50 percent of LINK has not yet entered circulation.
Today, Chainlink is integrated into more than 300 different projects in the blockchain space and an important part of Ethereum’s DeFi ecosystem. However, despite its meteoric rise it has been subject to a few issues and criticisms that it needs to solve moving forward. For one, according to Ethereum’s founder Vitalik Buterin it is problematic that there isn’t a good way for Chainlink to penalize bad data providers. Additionally, there are plenty of toxic “Link Marines” patrolling Twitter to protect LINK’s reputation.
Chainlink is in the process of rolling out updates to address bad data providers, by developing a second layer or oracles to supervise the underlying network. Despite what some critics call red-flags, Chainlink managed to achieve high market adoption.
As of November 2021, LINK is a top 20 cryptocurrency by marketcap with a total market cap surpassing $14 billion. The price in January of 2021 hovered around $11.30, briefly rising to surpass the $50 mark in May before dropping down to a price around $30 in November. Due to the limited supply of the token and its widespread use on the Ethereum network, there is potential for significant growth.
Buying and Storing LINK
Due to its popularity, there are many centralized exchanges that offer LINK alongside other bluechip staples like BTC and ETH.
|Fees||None||Vary depending on your transaction; high fees||Lower fees than coinbase|
|Payments||Interac e-transfer, wire transfer||Debit or Credit Card||Debit or Credit Card|
|Notes||Covers gas up to $5 (move to your wallet for free)||Offers the opportunity to earn various crypto for free through learning rewards||Promotion, when you join, waives fees for 30 days|
|Security & Reputation||Cold storage of your assets
|Strong reputation and track record
Storing Your LINK
MetaMask and Exodus are excellent wallets for storing ERC-20 tokens. While Exodus has more features for HODLing, MetaMask is better for its utility and the ability to connect with dApps.
For long term storage, consider transferring it to a cold wallet on a Ledger or Trezor cold wallet, that will be kept disconnected from the internet.
LINK can also be staked on crypto banks like Celsius.
|Hot Wallets||Cold Wallets||Crypto Bank|
|Wallet||Metamask / Exodus||Ledger /Trezor||Celsius|
|Platforms||Windows, Android, macOS, iOS,||Connects to any computer via USB||Android, iOS, Browser|
|Supported on Cold Wallets?||Yes||N/A||N/A|
|Mobile App Available||Yes||No||Yes|
|Initial Setup||10 – 15 mins||10 – 15 mins|
|Interest||N/A||N/A||3 – 4.0% APY|
The Case for Investing in Chainlink
Chainlink Solves an Important Problem
More than 300 projects are already integrating Chainlink despite its critical flaws. Suffice it to say, it provides an important service by evaluating and processing off-chain data. Effectively, it allows smart contracts to function with information that isn’t located on the blockchain.
With a current market cap of $14.3 billion, there is room for the value to grow 3-5 times if it’s able to fix its inherent issues; more if it continues its development of partnerships and is incorporated in dozens more projects and blockchains.
Penalizing Fraudulent Validators
LINK does not seem to have a very good way to penalize oracles that provide fraudulent data.
“Chainlink leverages similar economic incentives [as Bitcoin] to ensure accurate and reliable data is made available to smart contracts across a number of blockchain networks,”
– Nazarov via CoinDesk.
“With regard to explicit incentives, the Chainlink 2.0 white paper presented a staking model that significantly increases the crypto-economic security of the network through super-linear staking.”
Chainlink does not have a clear plan or roadmap, as there is with other utility-based tokens like Helium (HNT).
Also, Chainlink has a lot less focus on marketing, and has a slew of problematic self-appointed defenders on Twitter. This in itself can drive away many partnerships and investors focused on the image of LINK.
LINK isn’t highly decentralized.
A lot of its fate is tied to the Ethereum ecosystem right now; if it can receive adoption across other chains integrating smart contracts, it would make everyone much more confident in investing.
Is LINK a Good Investment?
Weighing the pros and cons, we can be cautiously optimistic for the future of Chainlink.
This is contingent on improvements in its security and a departure from its heavy reliance on Ethereum. There is room for Chainlink to grow and perhaps increase in price in the near future but without a clear roadmap and objectives, it carries some risk for the investor.
Chainlink provides an important service for smart contract providers on Ethereum. It allows for processing data off-chain, weighing its accuracy and then delivering it onto the blockchain to execute smart contracts. It has already received widespread uptake in the Ethereum ecosystem, especially in various NFT and DeFi applications.
While it functions as a Proof of Stake network, it lacks efficient protocols for penalizing nodes that push through inaccurate data. While the co-founders of the cryptocurrency are public and experienced with the field, there isn’t a crystal clear roadmap for future development.
There isn’t a solid marketing team involved with the project and several self-appointed Twitter protectors that may do LINK more harm than good, when it comes to attracting people to the project.
LINK has room to grow and develop into an amazing sidekick for Ethereum.
If it’s able to develop similar applications for smart contracts built on other blockchains, while also improving its underlying security, it could certainly rise in value.