What is Chainlink? ($LINK)
Chainlink (LINK) is a decentralized oracle network. It’s a blockchain-based technology that builds a bridge between crypto and real-world applications. Chainlink found a way to get access to real-world data in and out of a blockchain in a secure, trustworthy, and decentralized way, by enabling smart contracts.
Smart contracts are agreements running on a blockchain that is programmed to execute if and when certain conditions are met. They only offer on-chain services, which makes them limited in functionality, and Chainlink was created to address this. Chainlink creates a secure network where decentralized oracle networks are incentivized by money to provide on-chain functionality to an abundance of off-chain services. These functions make up a hybrid smart contract.
Oracles are entities that connect blockchains to external systems. They’re relied on to gather data from various sources by reading, reporting, and confirming real-world data outside of blockchains and then reporting them to the on-chain for blockchains and smart contracts, through web APIs or market data feeds. This ensures the security and reliability of the data.
Chainlink’s LINK tokens are used to pay for services on the network and to compensate node operators for retrieving data requested by smart contracts.
The Chainlink network was started in 2017 by co-founders Steve Ellis and Sergey Nazarov with the release of its whitepaper. In 2019, it launched on Ethereum mainnet. Chainlink has been used to distribute NFTs, gamify personal savings, and facilitate recalibrations of cryptocurrency token supplies, among other uses.
Chainlink’s execution process can be broken down into 3 steps:
Real-world data is transferred to smart contracts through node operators, and this is done by setting up a requesting contract. This request is registered as an event by Chainlink, a set of desired data requirements are specified, and it then sets up a matching smart contract known as a Chainlink service-level agreement (SLA) contract. The SLA matches the user with oracles that can provide the data. Once the parameters are set, users submit the SLA and deposit their LINK cryptocurrency in an Order-Matching contract, which accepts bids from oracles.
The oracles then connect with external sources and obtain the real-world data as requested in the SLA, which is then processed and provided back to contracts running on the Chainlink blockchain.
The final step is to add up the results of the data oracles collected and return it to the Aggregation contract. The Aggregation contract takes the data, evaluates their validity, and returns a weighted score back to the user based on the sum of all the data received.