Chainlink (LINK) is a blockchain project that has recently seen a meteoric rise in price, volume, and usage. The project has been making headlines for months now, partnering with some of the emerging, as well as established businesses that aim to become big in the crypto industry.
But what is exactly Chainlink? Why is it so attractive to other companies, and why does it seem that everyone is in the rush to team up with this project. That, and more is what we are going to discuss today, so if you wish to know all there is to know about Chainlink, and understand why is this project raising so much attention — keep reading, and all will be explained.
The problem of isolation in crypto and blockchain industries
Before we start talking about Chainlink itself, it is worth noting that the crypto industry is still quite young. The last several years have brought a lot of attention and money to it, but that doesn’t change the fact that there are some major issues that need to be resolved, and despite years of work, these issues have managed to persist.
One example is the isolation of prominent blockchain networks, which are working fine on their own, but they could not connect and work together. Think of Bitcoin and Ethereum — the two largest cryptocurrency projects that are simply incompatible and impossible to connect to one another. Of course, that was before the DeFi sector introduced the concept of Wrapped Bitcoin (wBTC) by issuing these tokens on ETH in exchange for locking up BTC.
That aside, there were many attempts to establish interoperability, as the crypto industry is becoming rather well-developed. All it lacks is the ability to connect and share features, services, and funds between different projects. Unfortunately, such attempts were all unsuccessful, either due to limited technology or the wrong approach. Chainlink figured out a way to bypass this issue and allow the crypto industry to take the next step in its evolution.
What is Chainlink?
Chainlink (LINK) is a unique blockchain project that created a decentralized oracle service. Its native coin, LINK, is currently the 9th largest cryptocurrency, with a market cap of $13.8 billion at the time of writing. LINK also has a daily volume of over $2 billion.
We said that Chainlink is a unique project, and there are many things that make it so. It is dedicated to creating smart contracts that are connected to the outside world, and it was the first project in the industry to do so. Since its creation, many other similar projects emerged, copying Chainlink’s idea and providing their own service, but Chainlink was the original project with the first-ever oracle network, which is why is the biggest and most popular one.
What does that mean?
Of course, Chainlink did not invent smart contracts. No, that achievement goes to Ethereum. However, Ethereum’s smart contracts can only manage data on the blockchain, while Chainlink brings data from the outside world into the crypto industry.
As such, Chainlink serves as a bridge between the decentralized blockchain world, and the outside world. As a result, it brings important real-world data into the crypto world, while it exports decentralization to the internet by allowing it access to smart contracts. See her below the picture:
More importantly, it can share its technology with other projects, thus exporting this data to them. As a result, it has the potential to allow the entire crypto industry to improve simply by feeding it accurate real-world data in real-time. This data can be retrieved from various data pools, off-chain APIs, and more. It would be particularly useful in combination with Internet of Things (IoT) products, many of which have sensors that can collect data and send it to the blockchain by way of Chainlink’s oracles. This data would then be integrated into the blockchain.
Another example would be extracting data from other off-chain services, such as PayPal, and bringing it to Ethereum chain. That would allow users to send payments from smart contracts to their bank accounts. The solution could also increase trust, eliminate intermediaries, reduce the cost of sending funds between on-chain and off-chain spaces, and much more.
How does Chainlink technology work?
In order to work as it does, Chainlink relies on two processes — one on-chain, and the other off-chain, as we mentioned before. Its smart contracts are described as externally aware, meaning that they have components that allow them to integrate with blockchain apps, as well as with non-blockchian applications.
Meanwhile, the project also has on-chain infrastructure that creates an Oracle record, and is otherwise in charge of oracle selection. Once the record is created, agreements are executed off-chain, which was followed by a report that returns to the on-chain infrastructure.
All of the infrastructure’s components can be updated to allow cross-chain transactions. However, this has yet to be done, and for the moment, the project’s solutions only works with Ethereum. Chainlink does have plans to expand in the future, but it first needs to adequately develop its services and create a strong foothold on Ethereum, which is its base of operation, before it starts creating a network and expanding its reach.
The on-chain part actually relies a lot on smart contracts, which retrieve data from the nodes. There are three components:
- The reputation contract, which keeps track of oracle metrics
- The order-matching contract, which collects bids from nodes
- The aggregating contract, that collects nodes’ answers and provides results for the user
In other words, the process can be broken down into three steps, which are oracle selection, data reporting, and retrieval of the results.
The off-chain part is even more interesting. Chainlink’s network is actually a part of the off-chain architecture, and it serves to collect the nodes, each of which is tied to off-chain reserves, where it gathers information. This information is then translated via the Chainlink core software — which still happens off-chain — in a way that allows it to be imported and viewed on-chain. One of the most important components here is the external adapter, which is used for connecting to 3rd party API endpoints.
As for smart contracts, which are the third crucial component — their role is to help in removing intermediaries and reducing transaction friction. They use oracles to retrieve and verify off-chain data, and they can include the working oracles into themselves. Essentially, they provide oracle data feed, which is then reshaped to meet the on-chain smart contracts’ conditions.
They use several different processes which include on-chain and off-chain mechanisms to ensure that the third-party data can be added to the blockchain.
What are Chainlink oracles?
We have talked a lot about Chainlink oracles already, but we have not explained what exactly they are. Essentially, they are programs that are used for retrieving data from off-chain environments, and verifying its credibility. They withdraw data from APIs and data pools, such as obtaining prices from stock exchanges, apps, online services, and more, in order to complete a certain task.
For example, if a company wanted to provide crypto prices on its own platform and it wants for everyone to know that the prices are credible, it could use Chainlink’s oracles to withdraw the information from trusted exchanges and deliver it to its platform.
The data sources are usually requested to provide specific information which is connected to the blockchain through the process described above. New smart contracts can be created to provide any specific information that can be obtained from data sources to which Chainlink is connected. Another example would be the lottery. If someone needed a random lottery number generator, they do not have to create one on the blockchain — they can simply use Chainlink oracles to connect to an existing one and retrieve the numbers externally.
In a way, oracles function as interpreters between the off-chain and on-chain world. See here below the infrastructure of how the Chainlink blockchain works.
What else is there to know about Chainlink?
Chainlink is fully decentralized, which is one of the reasons why it is so appreciated in and out of the crypto industry. It also allows anyone to join its network and run an oracle. It has a very robust reputation system, where every oracle has its own identity and reputation. As a result, users can easily say whether or not the oracle is reliable or not.
In fact, Chainlink takes reputation very seriously, and it doesn’t even allow nodes to act out without being punished for it. This is achieved through collateral. Basically, each node operator needs to deposit a certain number of LINK tokens, which are then taken as a penalty if the node provides bad data. This discourages any ‘shady business,’ and ensures trust in the system, while also ensuring that decentralization is maintained.
Other than that, the LINK token, which is an ERC-20 token, is also used for paying node operators for their contributions to the network. The token’s value comes from its use cases within the network, meaning that the number of operators working on the off-chain architecture is directly responsible for it. Basically, the more use cases the platform gets, the more valuable LINK will be.
At the moment, that is LINK’s only use case, apart from being used for trading. In other words, the coin’s value depends on the network’s adoption. Fortunately for LINK holders, Chainlink adoption has been speeding up in recent months, and the company has reportedly teamed up with numerous partners.
Some Facts about the LINK token
|Coins in circulation
|Price during ICO
|Different gains t.o.v. ICO
ICO from Chainlink (LINK)
The distribution of LINK’s tokens are predetermined. During the ICO at the end of 2017, the Chainlink team raised $ 32 million and this was also the target amount they set in advance. The token is issued as an ERC677 token. This is a token based on the Ethereum blockchain with the additional option to send data.
In total, the crypto company issues 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.
The Team behind LINK
The team behind LINK consists of two men, Sergey Nazarov (CEO) and Steve Ellis (CTO). In addition to these faces behind LINK, the men work together with six enthusiastic and influential advisors. We will of course put all names together!
Sergey Nazarov (CEO)
Sergey started his career building peer-to-peer marketplaces before moving on to the FirstMark Capital investment team. He joined the cryptocurrency revolution in 2011 and believes it has the potential to change the way societies distribute wealth, enforce contracts, and share crucial information with their citizens.
Steve Ellis (CTO)
Steve was previously a Software Engineer and Team Lead at Pivotal Labs, where he worked on securing sensitive HIPAA compliant data and building scalable payment automation software. He is a big fan of Ethereum, Bitcoin and the decentralized future we are all working towards.
Ari Juels – Technical advisor
Ari is a professor of computer science at the Jacobs Institute in Cornell Tech and co-director of IC3 (Initiative for Cryptocurrencies and Contracts). Previously, he was RSA’s Chief Scientist.
Andrew Miller – Technical Consultant
Andrew is a known leader in decentralized consensus research and secure blockchain infrastructure. He is an associate professor of computer science at the University of Illinois and a consultant to both Zcash and Tezos.
Evan Cheng – Technical Advisor
Evan is one of the makers of LLVM, which generates the low-level machine code that runs every Apple device, as well as much from Google, Nvidia, and Intel. He is currently Director of Engineering at Facebook.
Hudson Jameson – Technical Advisor
Hudson is the Ethereum Community Manager, a well-known authority on smart contracts and the Ethereum development roadmap. He has written why he supports our work with the ChainLink network here.
Jake Brukhman – Consultant
Jake was previously the CTO at Triton Research and launched CoinFund, one of the leading token-focused funds. He is now an advisor leading token sales such as Kik’s Kin Token and the ChainLink network.
Brian Lio – Consultant
Brian is the CEO of Smith + Crown, a widely accepted leader in blockchain research. Provides in-depth analysis of both ongoing token sales and the greater evolution of decentralized technology over the past 2 years.
Social Media Chainlink
Would you like to learn more about Chainlink or the progress they are making? Or are you mainly curious about experiences with Chainlink or LINK? You may find the answer to all your questions on Chainlink’s social media communities. We list them for you, including the number of followers as far as known:
- Twitter – 56.100 followers
- Reddit – 15.500 community members
- Telegram – 6.474 members
- Facebook – 5.074 fans
Whitepaper that went viral
Where most companies publish a whitepaper for an ICO with a few images and a piece of text in the hope of scaring people to invest in their ICO, the guys at Chainlink took a very different approach in 2017. The Chainlink whitepaper contains no less than 38 pages full of technical and scientific information.
No nice colored pictures, no graphics or models. But tough, raw, tough food for the reader. As an inspirational example, let’s take a look at page 36 of their whitepaper:
If someone can explain to us exactly what is written here, he has a chance of winning a Mars or a Snicker. Joking aside, Chainlink’s whitepaper – along with the LINK token itself – actually went viral after the ICO.
Chainlink is the classic example of an ICO that has turned out incredibly well. For both the Chainlink company and the LINK token and of course also for all investors who put the initial millions on the table together. Did you participate for 100 euros in 2017? Then today you would have just taken € 3,700 on it. Not bad right? Chainlink’s share price went from 0.09 cents to USD 5-8 +.
And even though results achieved in the past do not offer a guarantee for the future, the potential for Chainlink (and therefore also LINK) is still limitless. As more and more companies invest in blockchain and look for solutions to integrate their datasets with datasets from other companies, Chainlink’s oracle solution will prove to be an incredibly inventive solution.