What Is Chainlink? All You Need to Know About LINK

What Is Chainlink (LINK)?

Over the past few years, the blockchain industry has been growing at a very high rate, so much so that companies and institutions have been convinced to adopt this technology in various sectors. At the moment, there are many use cases related to it, which have the sole objective of making certain processes more efficient and automated.

All this was made possible by the introduction of smart contracts, which allow a specific contract or agreement between two or more parties to become independent from an intermediary (the so-called ‘middleman’), guaranteeing transparency, reliability, and lower execution costs. These types of contracts are applied almost everywhere, from finance to public administration management. However, smart contracts are ‘blind’ to the outside world, as they are programmable to perform only specific actions. So how do these communicate with the real world? There is a need for decentralized entities that translate external data into a language that smart contracts can understand. These are called Oracles, and Chainlink is considered the best one out there, as it ensures that smart contracts can be exploited to their full potential.

Chainlink is the product of SmartContract (now Chainlink Labs), a blockchain-focused technology startup founded in 2014 by Steve Ellis and Sergey Nazarov. In June 2017, Nazarov and Ellis launched the Chainlink project and released the White Paper with the help of Ari Jules, a consultant for the company. A few days after the release, the team launched an ICO which raised the equivalent of $ 32 million corresponding to approximately 35% of the total supply of the network’s cryptocurrency, LINK. The network was formally launched in 2019, the date in which one of the main pillars in the operation of today’s decentralized finance protocols (DeFi) was created.

As already mentioned, Chainlink belongs to the category of decentralized oracles, of which it represents an entire network of oracles. A network of oracles deals with providing data and bridging the digital world (smart contracts) with the real world, as well as carrying out the control and verification phases of data and sources. In fact, since this network must be decentralized, there is a need to examine the information obtained from different sources, authenticating the real ones and discarding the wrong ones. External data (also called ‘off-chain’) that is necessary for some smart contract applications could be related to the tracking of the supply chain, or more simply to the prices of certain cryptocurrencies, useful for running a DApp (Decentralized Application). To ensure that information is impartial, it is important that the oracle is not centralized, meaning, based on a single source. Centralization could bring both risks of data inaccuracy and vulnerability to attacks (single ‘point of failure’).

Chainlink is able to satisfy all the requirements of a decentralized oracle, because it is capable of providing reliable, censorship-free, and impartial data.

How Does Chainlink Work? Communication Mechanism

As already discussed, Chainlink solves the problem of the lack of a bridge between the off-chain and on-chain worlds, i.e. the real world and smart contracts. In August 2021, Chainlink introduced an important integration to promote interoperability between blockchains, facilitating communication between smart contracts belonging to different chains. So now, Chainlink is not only capable of validating data from multiple sources, but also distributing these across multiple protocols. \
The communication process with smart contracts can be summarized in three steps:

1. Chainlink users (can be any developer or project) need to get a certain set of data to give to a smart contract. In order to get them, they must use the Service Level Agreement (SLA), which is simply a software indicating what you need. This software will match the user with oracles that can provide the data by selecting them from the available ones. The data requestor will be required to deposit Chainlink (LINK) tokens in the contract that he will enter into. This amount will be used to repay the oracles for their services.
2. The oracles connect with external sources and obtain the real-world data requested in the SLA. Subsequently, the information is verified and entered into the network.
3. Finally, the results of the data collected by the oracles are counted, and these are returned to the so-called Aggregation contract. The information packet then moves onto the customer’s blockchain.

At this point, the flow of information can continue indefinitely. Chainlink is able to collect the same data from different sources and reconcile it into a single answer, which is the most accurate answer possible. If any source is found to be deviating from the rest, it is flagged as unreliable, which lowers its reputation score and makes it less likely to be selected when similar data is required again.

What Is the LINK Token?

LINK is the Chainlink token, based on the Ethereum protocol, and is the currency used for transactions and payments within the network. Its maximum supply is 1 billion units, of which 491.6 million (49%) are already in circulation (October 2022).

LINK tokens were initially issued and allocated as follows:

• 30% to the project team (constantly engaged in improvement and maintenance work).
• 35% for public sale.
• 35% for oracles and network security guarantors.

The LINK token has two main functions: payment token and work token. It is used to pay Chainlink node operators for providing oracle services, and it can be staked by these operators as collateral to provide oracle services. Operators set their price in advance based on the demand for the data they are providing and the current market for that data. When node operators stake LINK, they actually demonstrate their commitment to the network. Those with a greater stake are more likely to be chosen and consequently earn LINK for their services. If, for some reason, these services turn out to be faulty or the operators behave dishonestly, the Chainlink network will deduct their staked LINKs.

Chainlink Ecosystem

Chainlink has acquired an important reputation over time. In fact, several leading companies use its solutions to solve various problems.

Recently, in fact, Chainlink is collaborating with SWIFT for the creation of a Smart Oracle, which allows smart contracts on various networks to make payments, send governance instructions, and release collateral with traditional banks.

The one shown in the image is a Smart Bond structure. It demonstrates how Chainlink can be used to streamline certain processes, and thus make them cheaper. Its role is to build a bridge in the interaction between market data (bank interest rates) and the SWIFT circuit, also integrating the rating from Standard & Poor’s.

The Chainlink ecosystem boasts a very high number of applications. To date, more than 1500 projects (from startups to large enterprises) are using Chainlink’s oracles to securely connect smart contracts with off-chain data and services. Sectors vary from data providers, real estate, payments, DeFi & CeFi, to many others. It is especially in the DeFi sector that Chainlink is proving indispensable, as demonstrated by the fact that major platforms such as Aave, Synthetix, and Trader Joe are using the Chainlink Price Feed to ensure that the operating prices are the real ones, thus avoiding running into mistakes.

Based on all this, it is clear that Chainlink is a network able to satisfy very different requests and that further enhances the possibilities offered by blockchain technology.

Other use cases

There are so many applications of Chainlink in the real world, demonstrating how indispensable blockchain technology is today. Below are some other cases related to the use of Chainlink smart contracts.

• Supply chain: It includes every step that is involved in getting a finished product or service to the customer. The steps may include sourcing raw materials, moving them to production, then transporting the finished products to a distribution center or retail store where they may be delivered to the consumer. Each stop along the route needs to send data to the blockchain, which should trigger various smart contracts between entities, such as payments. Chainlink smart contracts can also perform more important things when connected with IoT sensors, such as monitor the quality of the product (food, medicine), the temperature of the storage environment, and the quality of the air in the storage environment. These things are essential not only for quality purposes, but also for dispute resolutions.
• Utilities: Electricity or gas supply, cable TV, Internet, etc. Users often pay fixed amounts on a weekly or monthly basis for access to them. However, they receive no benefits if the services go down for any amount of time. IoT sensors can monitor the uptime of utilities and Chainlink can feed their performance data into a smart contract to calculate monthly payments or issue reimbursements based on downtime. In this way, the relationship between the service provider and the customer becomes more fair and objective.
• Insurance: Any kind of arrangement by which a company undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death in return for payment can be improved by Chainlink’s smart contracts. The insurance industry today operates in a low-trust business environment. Since insurance companies are responsible for processing claims, they wield more power in terms of when and how claims are settled, not to mention that they have an incentive to falsely report positive metrics. The use of smart contracts to automatically trigger compensation claims can not only save the insurance company a lot of money by reducing the cost of processing claims, but it also reshapes the relationship of trust between the insurance company and the consumer, because the customer must not rely on the sincerity of the insurance company.

Is Chainlink a Good Investment?

As has already been discussed, the main use case of the LINK token is to pay oracles for their service, as well as to be deposited by network users within the SLA. It is the only currency that can be used for key network operations. Lastly, the amount of LINK an oracle holds is one of the factors determining its reputation, so an oracle is increasingly incentivized to accumulate tokens to prove its commitment. All this, combined with the fact that the supply of LINK is limited to 1 billion units, could push many other node operators or investors of all kinds to focus on the Chainlink project. This is certainly the one that most represents decentralized oracles, and has proven its usefulness in several sectors of the blockchain industry. Chainlink is a valid network, designed to solve a specific and real problem. Furthermore, if the integration of the blockchain with the real world were to continue, the demand for bridges between off-chain and on-chain worlds should increase dramatically.

How to Own LINK?

You can own LINK via a crypto centralized exchange, so you can begin by creating a Gate.io account. Once the account is verified and funded, find out the steps to buy LINK. In a nutshell, you can do this via flash swap, trading the spot market or even using leverage.

News on Chainlink

According to the recent release of Chainlink Economics 2.0, the team announced that it will finally launch staking for LINK holders to secure the network and earn rewards. The decision is due to the fact that, as the number of blockchain applications integrating with Chainlink is growing, it is more important than ever to further scale the security of the protocol, in order to match the increasing amount of requests. According to the announcement released by Chainlink, the main goal of staking on the network “is to give ecosystem participants, including node operators and community members, the ability to increase the security guarantees and user assurances of oracle services by backing them with staked LINK tokens’’. It seems that the introduction of this new feature has been received very well by the community, as staking introduces another powerful incentive and penalty mechanism for Chainlink nodes to consistently generate accurate oracle reports.

This news has been long overdue, as Chainlink has been working on a staking solution for years. When staking is active, token holders will finally be able to receive rewards while increasing the decentralization of the network.

Useful References

For the latest updates about Chainlink, you can visit:

• The official website
• Twitter
• Discord
• GitHub
• Telegram
• Reddit

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