Ever since the launch and initial success of Bitcoin, the cryptocurrency landscape has continued to expand, with new, fascinating projects coming up frequently that attempt to bridge the gap between the traditional financial markets and cryptocurrencies. The Chainlink ecosystem is one such project with the aim to bring interoperability to the blockchain industry.
Chainlink is essentially a decentralized oracle network of nodes that provide real world data and information from off-blockchain sources to the smart contracts on the blockchain. The Chainlink crypto coin, or LINK, is the digital asset token used to pay for the various services within the Chainlink ecosystem.
So, How Does the Chainlink Ecosystem Operate?
Before understanding how the Chainlink ecosystem works, we have to get to two basic concepts first: smart contracts, and oracles.
In case you weren’t aware, smart contracts self-executing contracts that evaluate information and automatically execute themselves once all predetermined conditions are met. Since smart contracts exist on a blockchain, they are immutable; therefore, once certain conditions are coded into a smart contract, they can not be changed. Plus, smart contracts are also transparent and can be verified by all counterparties involved in a transaction. This particular feature ensures that the smart contracts reflect all pre-specified parameters of an agreement, and will execute if – and only if- every single one of them is met.
Now, the data defining all these conditions on smart contracts usually comes from the blockchain hosting the contract. But when smart contracts need to create agreements with information found beyond the blockchain, they need off-chain data translated into an on-chain format. The difficulty in connecting off-blockchain sources of information to blockchain smart contracts in a language perceived by both is one of the main obstructions that bar mainstream use of smart contracts.
This is exactly where we need oracles. An oracle is a software also known as ‘middleware’ due to the fact that it acts as an intermediary, bringing and formatting off-chain data so they can be understood by on-chain smart contracts, and then translating them back again.
However, a single, centralized oracle goes against the very nature of a decentralized, blockchain-secured smart contract. A centralized oracle creates a central point of weakness on an otherwise decentralized blockchain, since if it somehow gets corrupted, all information stored on the blockchain is at risk.
Chainlink was developed with the goal to eradicate this very threat posed by centralized oracles. As mentioned before, the Chainlink ecosystem is a decentralized network. Therefore it does away with the reliability issues that might occur while using a centralized oracle.
Now, let’s see how exactly the Chainlink ecosystem accomplishes total decentralization:
The process begins with an on-blockchain smart contract that requires information from outside sources. This smart contract puts out a Requesting Contract for off-blockchain data.
The Chainlink protocol acknowledges this request as an ‘event’ and in turn develops a corresponding smart contract on the blockchain to acquire the requested off-blockchain data, also known as a Chainlink Service Level Agreement/SLA Contract. Now this Chainlink SLA Contract creates three sub-contracts: a Chainlink Reputation Contract, a Chainlink Order-Matching Contract, and a Chainlink Aggregator Contract.
The Chainlink Reputation Contract first evaluates an oracle provider’s track record to confirm its authenticity and performance history, and gets rid of any suspicious and unreliable nodes. The Chainlink Order-Matching Contract then passes along the Requesting Contract’s request to the Chainlink nodes and proceeds to pick the specific number and type of nodes requested to fulfill the specific request. Finally, the Chainlink Aggregator Contract gathers the information from the chosen oracles and validates it for the requested output.
Now, Chainlink nodes take the Requesting Contract’s request for information and use the software “Chainlink Core” to translate that request from an on-blockchain programming language to an off-blockchain programming language so that a real-world data source can comprehend it.
The freshly translated version of the request is then passed on to an external API (application programming interface) which collects data from the aforementioned source. After the requested information has been acquired, it’s translated back into an on-blockchain language through Chainlink Core and given to the Chainlink Aggregator Contract.
The Chainlink Aggregator Contract can validate information found from both a single source and several sources, and it can also reconcile information from several sources. For instance, if five nodes bring one answer from a particular weather sensor, and two other nodes present a different answer from that same weather sensor, the Chainlink Aggregator Contract will recognize those two nodes as faulty and reject their answers.
This is how the Chainlink Aggregator Contract can validate data from a single source. And when it comes to data from multiple sources, the Chainlink Aggregator Contract repeats the same validation process for them. It then averages out all validated data into a single piece of information.
What Purpose Does the Chainlink Crypto Coin Serve?
The Chainlink coin, LINK, is built on Ethereum as per the ERC-20 standard for crypto tokens. The Chainlink crypto can be traded out for fiat money, or any other digital assets.
The Requesting Contract holders use the Chainlink coin to pass on payments to the Chainlink node operators. Prices for their work are set by the Chainlink node operators based on the demand for the data they provide, and the current market for the information.
Chainlink node operators can also use the Chainlink crypto LINK to stake in the network. In that case, node operators must deposit their LINK tokens with the Chainlink ecosystem to attest to their commitment to the network. The Chainlink Reputation Contract considers the amount of the Chainlink coin a particular node has staked – along with some additional details – when pairing nodes with various requests for information. Thus Chainlink nodes with a greater stake in place have more chances of being chosen to fulfill requests, and earn more LINK tokens in exchange for their services.
What Are Some Projects Integrated With the Chainlink Ecosystem?
Chainlink is one of the newer projects within the DeFi world that’s already appealing to a wide assortment of developers. As of right now, the Chainlink ecosystem supports dozens of projects on the market, spanning several industries. In the past few months, Chainlink has seen quite a large number of ventures integrating with its technology; the total number of project integrations within the Chainlink ecosystem has long since crossed 300.
The BOSAGORA Project is one of the recent additions within the Chainlink ecosystem. BOSAGORA brings about an innovative staking pool investment model; it is a decentralized blockchain platform where stakers can choose which projects they want to back up through a democratic decision making procedure. The native token of the platform is BOA.
BOSAGORA makes use of the oracle solution Chainlink offers to give out flat loans collateralized by BOA tokens, and ensure reliable pricing data in the process.
ONBUFF, an IP (intellectual property) tokenization and circulation platform, intends to implement the blockchain tech in the IP business. The price feeds provided by the Chainlink ecosystem enable ONBUFF to support its IP Market platform known as IP Block. The platform allows users to trade and list NFTs (non-fungible tokens), and accepts payment in the form of their preferred cryptocurrencies.
Deutsche Telekom subsidiary T-Systems, a German IT services and consulting institution, has integrated with the Chainlink ecosystem. T-Systems aids the advancement and gradual mainstream adoption of the blockchain technology, and it also helps secure the Chainlink oracle network.
Antasy, ATTN’s NFT platform, has also been technically integrated with the Chainlink ecosystem. The platform aims to let developers build dynamic NFTs and games with ease. The platform aims to use Chainlink’s tech to create random traits and elements within Antasy platform NFTs and games.
FirmaChain, a blockchain supported E-contract (electronic contracts) protocol, is integrating the tech within the Chainlink ecosystem to create better, seamless electronic contracts.
UniDex, the popular DeFi trading platform based on Ethereum, has also integrated with the Chainlink ecosystem. The Chainlink oracles will provide reliable price information for leveraged positions, the prediction markets, options contracts, as well as Unidex’s synthetic concepts.
RAI Finance is a cross-chain DeFi exchange platform built on the Polkadot network. To deal with the fluctuating markets, this protocol too is integrating with Chainlink price feeds for reliable data regarding prices. Hakka Finance is yet another platform to make use of the Chainlink price feeds.
Similar to UniDex, several other leading DeFi protocols have integrated with the Chainlink ecosystem, such as the synthetic asset market Synthetix and the token exchange platform Kyber Network. Furthermore, the Chainlink ecosystem has integrated with non-Ethereum based projects too. There are the Polkadot and Tezos integrations. There are also several Chainlink partnerships – with renowned platforms such as Google, Swift, and Oracle. Check out our detailed post for more on that.
In an attempt to make its oracles more secure, and to support newer DeFi use cases, Chainlink integrated with DECO very recently. Developed by Cornell University, DECO is a verification protocol for oracles to prove the authenticity of sensitive information. This
acquisition aims to boost the Chainlink ecosystem’s appeal in growth areas currently going huge, like attraction gaming, insurance, and enterprise architectures.
Is the Chainlink Crypto Worth Investing In?
As more and more projects from both inside the cryptocurrency world and outside of it keep integrating with the Chainlink ecosystem and leveraging the platform’s technology with every passing day, the Chainlink coin LINK continues to show excellent growth within the crypto markets.
Back in September 2017, LINK was funded with an ICO (initial coin offering), and the project managed to raise $32 million. Then in 2018, the LINK prices went up from $0.15 to $0.43 per coin, and after several more price hikes, the price of the Chainlink crypto finally increased to $1.
In 2019, the Chainlink coin was listed on Coinbase, and the prices went further up to $2.24. By the time LINK appeared on the exchange platform, the prices were at $4.45. Fast forward to the end of 2020, and the Chainlink crypto was trading at $11.14.
Coming to 2021, LINK continued trading at $11.45 on the first of January. The prices continued to rise still, and as of March, 2021, Chainlink prices are slightly over $27. According to the Chainlink coin price predictions, the prices are fully expected to go higher in the upcoming days if the Chainlink crypto continues to perform well.
Chainlink price predictions further suggest that by the end of 2021, the Chainlink coin might reach above $50. As for market cap, the Chainlink crypto is already among the top ten highest valued cryptocurrencies around the world, with a market capitalization of over $11 billion. Considering LINK’s performance so far, it’s indeed a great investment option.
We hope our blog post on the Chainlink ecosystem has helped you grasp a good idea of how the network works. For more posts on cryptocurrencies or trading advice, don’t forget to visit our website!
Hitesh Malviya is the Founder of ItsBlockchain. He is one of the most early adopters of blockchain & cryptocurrency enthusiast in India. After being into space for a few years, he started IBC in 2016 to help other early adopters learn about the technology.
Before IBC, Hitesh has founded 4 companies in the cyber security & IT space.
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