🤔 What is Chainlink?
Blockchain live on computers and do not have a way to access external data like weather, price feeds, outcome of an event, etc. We cannot trust a single third party as the source of this data feed.
Chainlink is a network of decentralized oracles that provide real-world data. A smart contract can use this oracle network to access external data.
Chainlink acts as a middleware between real-world and blockchains.
💡 What role does LINK token play ?
- Staking: Oracles stake LINK tokens. Their stake is slashed if they do not provide the correct data. This mechanism keeps the oracles honest.
- Mode of payment: Smart contracts pay LINK tokens to oracles for providing data.
📝 Origin of Chainlink
- The Chainlink network was launched in June 2017 by a for-profit company SmartContract.
- Steve Ellis and Sergey Nazarov, later published Chainlink’s white paper in September 2017 with Ari Juels, an advisor to the company.
- The Chainlink team held initial coin offering (ICO) in 2017, raising the equivalent of $32 million by selling 35% of the 1 billion LINK tokens.
👴🏻 Sergey Nazarov - Founder
- He is son of Russian immigrants who moved to New York in the early ’90s.
- His parents were engineers and they introduced him to computers at the tender age of five.
- In his teenage years, he was quite obsessed with Legos, taking old cathode-ray televisions apart to see what made them tick, and playing a lot of real-time strategy video games.
- He acquired Bachelor of Arts in Philosophy and Management from New York University.
- 2010: Teaching Fellow at New York University Stern School of Business.
- 2009 to 2010: He worked at FirstMark Capital, where he built peer-to-peer marketplaces.
- 2011 to 2014: Was general partner at QED Capital, a venture capital fund.
- 2014 to 2016: Cofounded and CEO at Secure asset exchange(Smart Contracts for real-time revenue sharing with multi-signature escrow to insure performance).
- 2017: Founder and CEO of Chainlink.
😌 What problems does it solve ?
- Oracle problem: Blockchain live on computers and cannot access outcome of a real-world event. Using trusted centralized data providers defeats the purpose. Chainlink is a network of decentralized oracles that provide real-world data in a trustless and decentralized manner.
- Plug and play solution: Every crypto project does not have to build its own oracle solutions. The projects can integrate with Chainlink to access secure and trustless network of oracle nodes to access the required data.
- Usecases: Many new applications that use real-world data can be built using oracles:
- Money markets:
- Decentralized exchanges
- Options and futures market
- Synthetic assets that mirror value of a real-world asset.
- Blockchain interoperability:
- Generating true randomness:
🤖How does it work ?
Chainlink consists of network of oracles that feed real-world data to blockchains.
How the process works ?
- Oracle Selection – First, Chainlink users draft a service-level agreement (SLA) that specifies a set of desired data requirements. The software then uses the SLA to match the user with oracles that can provide the data. Once the parameters are set, the user submits the SLA and deposits their LINK cryptocurrency in an Order-Matching contract, which accepts bids from oracles.
- Data Reporting – This is where the oracles connect with external sources and obtain the real-world data requested in the SLA. The data is then processed by the oracles and sent back to contracts running on the Chainlink blockchain.
- Result Aggregation – The last step involves tallying the results of the data oracles collected and returning it to an Aggregation contract. The Aggregation contract takes the responses, assesses the validity of each and returns a weighted score, using the sum of all the data received, to the user.
The nodes are made up of two components:
- Chainlink Core – Chainlink Core is responsible for reading newly filed SLAs and routing assignments to the Chainlink Adapter.
- Chainlink Adapter – Acts as the bridge between the node and the external data. The adapter can read and process the data and write it to the blockchain.
🏛️ Governance model
Chainlink project is maintained and updated by a for-profit company: Chainlink labs. There are no plans to decentralize the governance of the protocol.
Chainlink labs can be a single point of failure in terms of government regulation, making changes to protocol like increasing the max token supply, etc.
🤑 How much money does the project have for future development ?
- Chainlink raised $32 million by selling 35% of total LINK supply.
- The project and founders hold 30% of the total LINK supply.
- Many projects have chosen Chainlink oracle network for their projects.
- Demand for reliable data feed for smart contracts is growing.
- Chainlink was the first project to launch decentralized oracle network.
- Demand for oracle nodes will grow as more smart contracts start using Chainlink. More oracles joining the network will make the network more robust and improve quality of data. This will attract even more developers to build smart contracts using Chainlink oracles. This positive feedback loop will cause exponential growth in short period of time.
😨 Risks and challenges
Chainlink is a centralized protocol being maintained by a single private company. There is no guarantee that the company will not face difficulties like government regulations, lawsuits – for selling unregistered securities, internal disputes, etc.
Chainlink has fix max supply of 1 billion LINK tokens. They have been distributed as follows:
These tokens will be released as follows:
Token’s price increases due to demand pressure.
Demand pressure on LINK will come from:
- Oracle nodes: They will acquire and stake LINK tokens.
- Smart contracts: They will acquire LINK tokens to buy real-world data.
- Speculators: They will acquire LINK tokens for future price appreciation.
Chainlink will power apps like money market, insurance etc, each of which is trying to disrupt industries worth billions of dollars.
Price of LINK token will keep increasing till the time Chainlink ecosystem is growing.
🧐 Indicators to watch out for
- Number of projects using Chainlink oracles is growing:
- YouTube channel is growing:
- Twitter following is growing:
Chainlink extends the functionality of blockchains.
However, investors planning to invest in LINK tokens should keep in mind:
- Only 50% of the LINK supply is in circulation.
- Governance of protocol is centralized.