What is Chainlink?

TL;DR:

Chainlink positions itself as a reliable tamper-proof solution to power smart contracts on any current or future blockchain ecosystem. At its core, Chainlink allows for developers to connect their smart contract to data sources and APIs. This will make smart contracts more versatile, as they can now access eternal information, something that was impossible otherwise.

Introduction

Despite the name “smart contracts”, a contract written and executed on the blockchain is not necessarily all that smart. It only knows the code its original creator added to the contract, and is capable of interacting with other users on the same network.

However, it is incapable of collecting external data, whether it be prices, events, outcomes, or anything else. This is widely considered to be a crucial drawback, but one that can be addressed through different technologies.

What is Chainlink?

One of the solutions to properly address this issue is Chainlink. The project is extending the basic functionality of smart contracts by adding access to external APIs and other data sources. This will not only allow for more viable “simple” smart contracts, but can usher in the development of far more complex agreements, products, and services over time.

Another feature made possible by Chainlink is allowing users to send payments from a smart contract to bank accounts and other payment networks. It bridges the gap between cryptocurrency and traditional finance, simply because of its API and data source access.

In the end, it all comes down to ensuring all smart contracts on any blockchain will be reliable. While a smart contract can result in digital agreements, ensuring the overall reliability will require something more. Chainlink ensures the inputs and outputs of every contract are secure at all times, making sure there can be no trickery along the way.

What are the benefits?

Extending the active abilities and aspects of smart contracts sounds good on paper, but this will only be useful if it can make an effective change. To build truly valuable smart contracts, the performance of the code will require multiple inputs and outputs. The inputs ensure all of the data is correct at all times, whereas outputs will effect outside systems or payment networks, among other things. Allowing contracts to reach their full potential is one of the core objectives of the Chainlink project.

Furthermore, Chainlink makes use of multiple data oracles to provide data input. Relying on one or two sources, without matching the data against other sources, may not always be reliable. Centralized oracles are a weak point in the equation, and are best avoided. Chainlink’s decentralized oracles evaluate the same data from many sources before it is effectively “used” for the smart contract in question.

Obtaining the data to tap the full potential of smart contracts is just one possible way to use Chainlink. Another option is to provide APIs and data feeds directly to millions of contracts and monetizing this access in the process. Chainlink's team is convinced that millions of contracts, as well as blockchain applications will be looking for APIs and reliable data feeds in the future.

Why use this solution?

Both individual developers and enterprises have the potential to monetize their data in the process. For developers, users can create a new Chainlink and sell any API to smart contracts. This does not just relate to cryptocurrencies, but can provide information on any type of data, events, or otherwise.

For enterprises, there is the option to sell company data and any internal APIs to empower existing and future smart contracts. Being able to provide this data directly to smart contracts can yield additional revenue for enterprises. Any enterprise can become an official Chainlink partner, should they desire to explore that option.

Considering how Chainlink is blockchain agnostic, developers and enterprises can begin selling their data feeds and APIs to any and every network. The list of potential networks to incorporate this data include Ethereum, Hyperledger, Bitcoin, and many others.

Potential impact on DeFi

One of the industries Chainlink aims to explore is decentralized finance, or DeFi. Through its decentralized oracle networks, Chainlink will try to offer reliable and transparent price feeds to all DeFi products and services.

To avoid any potential price manipulation, DeFi developers are invited to integrate Chainlink and benefit from high-quality data sources. This can be of value when more advanced smart contracts are deployed. Moreover, having reliable data allows users to verify the information and benefit from end-to-end security.

For companies and teams eager to build their DeFi solution, the integration of Chainlink can have many different outcomes. Issuing synthetic assets tied to real-world assets require reliable price information around the clock. Chainlink can provide this solution.

The same goes for any project involving stablecoins. After all, these currencies are backed by collateral, which has a fluctuating value. Pegging a stablecoin to fiat currency or currency baskets will require verifiable price information. This is another example of how one can integrate this technology into current and future products.

The LINK token explained

Similar to other blockchain ecosystems, Chainlink has its own native token, called LINK. These tokens are used to pay node operators for data sets they retrieve on behalf of smart contracts. Additionally, LINK is also used for deposits placed by node operators, as this can be required by contract creators.

LINK tokens adhere to the ERC667 token standard for the Ethereum network. This standard lets tokens be transferred to contracts and call contracts with additional provided data.

It is worth noting that Chainlink is seemingly intent on keeping its LINK token on Ethereum forever. It will not form its own blockchain or network in the future. This is different from some other projects, as the likes of EOS and TRON initially issued their tokens on Ethereum before creating their own blockchain.

Closing thoughts

To begin building more advanced decentralized solutions and smart contracts, accessing external data is crucial. Chainlink provides this solution through different oracles, which can be used to obtain any sort of data or information alike.

The option for developers and enterprises to monetize their data can be beneficial to a lot of users as well. It remains to be seen how popular this option turns out to be.

Most of the focus seemingly lies with accessing data, for the time being. This will serve as another big step in the evolution of blockchain technology.

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