Launched in 2017, Chainlink is a decentralized oracle network that feeds blockchain smart contracts with trusted, tamper-proof, real-world data. It provides price feeds, APIs, links to traditional payment systems, event results, etc.
LINK is the native cryptocurrency of the Chainlink network. It is used to pay for services on the platform. Moreover, LINK acts as collateral of data validator’s reliability and can also be used for trading crypto on several exchanges.
To maintain its value over time, LINK is hard-capped at 1 billion units. According to CoinMarketCap charts, LINK is currently the 5th largest cryptocurrency with a market cap of around $5 billion.
This article will walk you through several aspects of Chainlink, be it security, working, utility, and much more.
Let’s get started.
Why Chainlink?
Most data-driven smart contracts require trusted off-chain data to function. For instance, a DApp (decentralized application) that displays crypto price feeds will need updated prices of various cryptocurrencies from reliable sources without compromising blockchain’s security. Chainlink solves this problem by providing reliable off-chain data from a network of data oracles.
Talking about security, Chainlink has a network of data providers and leverages a large pool of data sources; this removes any single point of failure and increases reliability. Moreover, it employs secure hardware to ensure maximum security. The data providers (oracles) are required to deposit a certain amount of LINK tokens as collateral.
Upon providing tamper-proof or false data, some tokens are deducted from their deposits. Also, successful submissions provide incentives to data providers as a reputation score is assigned to each. This ‘incentive-and-fine’ economic structure based on ‘how reliable your provided information is’ further strengthens the Chainlink ecosystem.
The fact that Chainlink is used by industry leaders like AAVE, yearn.finance, celsius, Google, etc., speaks volumes of Chainlink‘s reliability and efficiency.
How Does Chainlink Works?
Chainlink works on a Request-Event-Response mechanism. To read an oracle request, match the request with real-world data sources, and return the desired results to the smart contracts, Chainlink follows these steps –
1. Oracle Selection (Request)
Firstly, users submit a data request with a specified set of requirements. This is done via a service-level agreement (SLA).
Users then deposit LINK cryptocurrency in an Order-Matching contract. This contract accepts bids from data oracles.
2. Data Reporting (Event)
The assigned data oracle collects requested data in the SLA from real-world sources. The processed data is sent back to the smart contracts on the Chainlink blockchain.
3. Result Aggregation (Response)
In the last step, the results are analyzed and returned to the Aggregation contract. This contract takes the responses and returns it to the user, along with a weighted score of data validity.
How To Use Chainlink?
LINK cryptocurrency is used to pay for key services on the Chainlink platform. You can also be a data validator by depositing LINK tokens and earn incentives on your submissions. Moreover, like any other crypto token, you can use LINK for trading crypto. LINK can be bought, sold, and traded for profits.
Moreover, you can integrate price feeds, verifiable randomness, or access any external data by deploying APIs on your smart contracts using Chainlink.
Wrapping UP
Chainlink has significant utility in the blockchain universe as it acts as a secure bridge between the on-chain and the off-chain world. It has a network of data oracles, providing trusted real-world data to several smart contracts.
Seamless integration with few lines of code is an added plus as accessing off-chain data becomes a breeze. Overall, Chainlink is scaling the blockchain space to new heights with its innovative approach of connecting smart contracts to trusted data.
*This is part of a series of “What is” cryptocurrencies.
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