What Is Chainlink? LINK Explained in Plain English - Linen Wallet — protect your crypto with multi-key security

Chainlink (LINK) is one of the most useful cryptocurrencies for blockchains. With a market cap of just under $3,000,000,000 USD, Chainlink has proven itself as a staple in the blockchain industry. But is this cryptocurrency meant to proceed as technology develops? Could Chainlink (LINK) continue to be the oracle of the crypto world? In this article, we’ll answer these questions by explaining what Chainlink is, how it works, and how it differs from other popular cryptocurrencies. It took us countless hours of dedicated research to write this article. Therefore, we can assure you that this guide will help you understand all there is to know about Chainlink (LINK).

What Is Chainlink (LINK)?

Chainlink (LINK) is a decentralized oracle network that provides reliable, tamper-proof inputs and outputs for complex smart contracts on any blockchain. The company’s mission is designed to build the most trusted ecosystem of links to bring blockchains and real-world data together.

For smart contracts to be executed properly, they require access to external data sources. This is where Chainlink comes in. Chainlink acts as a middleman between the contract and the data source, retrieving the data needed and providing it back to the contract in a secure way. In other words, Chainlink allows smart contracts to interact with real-world data.

An example of the use case for this would be a smart contract for a weather insurance policy. The contract could be set to automatically pay out when the temperature exceeds a certain degree on a specific date. For the contract to know whether or not to pay out, it would need to access data from a weather service. This is where Chainlink comes in, as it would act as an intermediary, retrieving the data from the weather service and providing it back to the contract.

Data from oracle networks like Chainlink can also be used to trigger smart contracts. For example, a contract could be designed to automatically buy or sell a security when the price reaches a certain level. In this case, Chainlink would provide the price data from an exchange to the contract, which would then execute the trade.

Without oracles, smart contracts would be limited to working with data that is hardcoded into the contract itself. This would severely limit their usefulness, as most real-world applications would require access to external data sources. Real-time data from the world around us is constantly changing, so it would need to be updated regularly for smart contracts to function properly.

Imagine if you had a smart contract for a flight insurance policy that automatically paid out when your flight was delayed by more than two hours. Without an oracle, the only way to update the contract with the latest flight information would be to manually edit the code and redeploy the contract. This would be both time-consuming and expensive, as you would need to pay gas fees to deploy the contract each time.

With Chainlink, you could simply use an oracle to regularly update the contract with the latest flight information automatically. This would save you both time and money, as you wouldn’t need to redeploy the contract every time there was a change.

The use cases for Chainlink are endless, as they can be used to connect smart contracts to any external data source. This includes everything from stock prices and weather data to sports scores and flight information. The world is ever-changing, so smart contracts need to be able to access real-time data if they are to be useful. It’s an often overlooked but essential piece of the puzzle. Through blockchain oracles, we can finally make smart contracts truly smart.

Another way to think of Chainlink is as an API for blockchains. Just like how an API allows different software applications to communicate with each other, Chainlink allows different blockchain applications to communicate with each other. Although blockchains are designed to be decentralized and independent, there are still many use cases for them to interact with each other.

For example, let’s say you have a blockchain application that tracks your financial transactions. You may want to add functionality to automatically convert between different currencies. To do this, you would need to access a price feed from an exchange. With Chainlink, you could easily connect to an exchange API and get the latest prices.

Chainlink is also useful for connecting to off-chain data sources. For example, you may want to build a decentralized application that interacts with a traditional database. With Chainlink, you could easily connect to the database and query it for data. This would allow you to build decentralized applications that are not limited by the data available on the blockchain.

In summary, Chainlink is a distributed network of nodes that provide secure, reliable, and tamper-proof data to smart contracts. This data can be sourced from any external data source, including traditional databases, off-chain data sources and real-time data feeds. Chainlink is the missing link that is needed to make smart contracts truly useful. It is an essential link between blockchains that will enable the next generation of decentralized applications.

How Does Chainlink Work?

Chainlink (LINK) works by connecting blockchain smart contracts to external data sources. This is done through the use of decentralized oracles, which are nodes in the network that retrieve data from off-chain data sources and provide it back to the smart contract. The data that is retrieved by the oracles is then hashed and signed. This ensures that it has not been tampered with. The data is then fed into the smart contract, where it can be used to trigger certain events.

An operator node is essentially anyone who wants to run a Chainlink node. The benefit of operating a Chainlink node is that operators receive LINK as compensation for their work.

Node operators on the Chainlink network can also stake their LINK. This shows that they are committed to the project and have a vested interest in its success. When a node operator stakes their LINK, they are essentially locking it up for some time. The more LINK an operator has staked, the higher probability that the Chainlink Reputation Contract will select that operator to fulfill task requests. If selected, they can earn even more LINK as a reward for their services.

The way punishment works for bad actors on the network is through taxing LINK from the bad actor’s staked balance. This system is also secure because the data being fed into the smart contract cannot be tampered with. This is because it is signed by multiple nodes in the network. This allows for a high degree of trustless data interoperability between different blockchain applications.

Chainlink works to efficiently provide accurate information because it uses specially designed smart contracts combined with a strong incentive structure. There are five types of Chainlink smart contracts each with its own specific functionality.

(This part is a little bit technical, so feel free to skip it if you find it too complex!)

The first contract that initiates the process is the Requesting Contract. As the name implies, this contract requests data from external sources. Once the data has been requested, this contract then creates what’s known as the Service Level Agreement (SLA) Contract. From this contract, three sub-contracts are created, each serving a specific purpose that ensures data quality. The first of these is the Reputational Contract, which we explained earlier.

The other two smart contracts are the Order Matching Contract and the Aggregating Contract. The Order Matching Contract’s responsibility is to match the request from the initial smart contract with a node that meets the requirements needed to present the accurate data. The Aggregating Contract verifies that the information is indeed correct. This can be thought of as the quality check at the end of the data retrieval process.

After the data is aggregated and verified, it finally reaches the blockchain application in the form of a trigger. This trigger can then execute the intended function of the smart contract. Through this process, LINK holders are rewarded, blockchains receive needed data, and trustless data interoperability is established between different applications.

Chainlink (LINK) Fun Facts

680,116 total addresses holding LINK
$20,419,460,889.64 Total Value Secured
Total supply of LINK is capped at 1,000,000,000
Market Cap of $2,970,298,341 USD according to CoinMarketCap

(Data as of 7/14/2022)

The Story of Chainlink (LINK)

Chainlink was founded in 2017 by Sergey Nazarov and Steve Ellis. The duo also launched SmartContract, which led to the creation of Chainlink. Brave New Coin, Alpha Vantage, and Huobi were among the company’s first clients.

The project started as an ERC-20 token on the Ethereum blockchain working with smaller DeFi projects. But it looks like the project is starting to embrace non-crypto organizations such as AccuWeather, FedEx, FlightStats, and the Associated Press. All of these companies require accurate data to function effectively and Chainlink is the oracle of choice for the blockchain industry.

The project has also been in talks with Eric Schmidt (ex-Google chairman and CEO). If this oracle network can use this connection to accurately access the vast amount of data available on the internet, it would be a major game changer for the blockchain industry.

Chainlink’s rise to the top as the go-to oracle of the industry can be attributed to its use of specially designed smart contracts and a strong incentive structure. Their community of developers and researchers is also passionate about the project and its potential. The story of Chainlink has been successful thus far and it looks like the project has been connecting with the industry leaders that will help it continue to grow.