ChainLink

Current Price $0.23 USD
Market Cap $80.32 Million
Volume (24 hr) $1.35 Million
Change
1 Hour
+0.1%
24 Hours
+3.11%
7 Days
-13.37%
Exchange
Currencies
Fees
Fiat?
88
0.5%
247
0.1%

Smart contracts bring a new level of trust to written agreements; they are self-verifying and self-executing, which makes them ideal for administering digital agreements. The only problem is that a lack of external connectivity hinders the mainstream application of smart contracts. They are limited to data on the blockchain by design.

To address this issue, ChainLink launched as a dthecentralized oracle network that connects smart contracts with external data sources. Here are some examples of ChainLink’s next-generation smart contracts and their data requirements:

Securities Smart Contracts – Bonds, interest rate derivatives, and others that require access to APIs reporting on market prices and market reference data.

Trade and Finance Smart Contracts – Contracts that need data from Enterprise Resource Planning (EPS) systems, GPS data about shipments, and customs data about goods being shipped in order to confirm that a contract has been fulfilled.

Insurance Smart Contracts – Contracts that need data feeds related to the insurable event in question. E.g. did the flight you have insurance for arrive on schedule, was a warehouse’s door locked at the time of a burglary, etc.

Oracle Network Solutions Explained

The vast majority of interesting smart contract applications rely on information from the real world that comes from data feeds and APIs that are external to the blockchain. Because of the mechanisms of consensus protocols underpinning blockchains, a blockchain cannot directly retrieve that kind of data.

The current solution to this problem is an oracle, a third-party network that provides smart contracts with connectivity to the outside world. But existing oracles are centralized and any smart contract using one gains a single point of failure, making it no more secure than a traditional digital agreement.

ChainLink is an oracle network that operates as a fully decentralized network. It enables smart contracts to securely push data to APIs and interact with off-chain resources, which is important if they are to replace older contractual mechanisms. By being decentralized, it extends the tamper-proof quality valued in smart contracts to the end-to-end operation between smart contracts and the APIs they rely on.

It essentially facilitates the creation of externally-aware, tamper-proof smart contracts that can push data to external APIs and various legacy systems. To fulfill its ambitious use-case, ChainLink features a token called LINK that is used as payment to node operators for off-chain computation, retrieving data from off-chain data sources, formatting data into a readable format, and guaranteeing network uptime as operators.

LINK Pricing, Market Cap and Volume

There is a finite supply of 1 billion LINK, of which 35% is in the circulating supply. 30% of LINK tokens are being held by the development team and the remaining 35% have been set aside for node operators.

LINK was launched after an ICO that ended on September 19, 2017, with the final token price of $0.091 USD. It was dormant for most of 2017, but it managed to become one of the top 100 cryptocurrencies in the market. Its price rose significantly between December 2017 and January 2018 to reach ~$1.34 USD with a market cap of ~$460 million USD. It now hovers at ~$0.50 USD.

How ChainLink Works

ChainLink’s core functional objective is to bridge on-chain and off-chain environments. It will initially be built on Ethereum, but its developers intend for it to support all leading smart contract networks for both off-chain and cross-chain interactions.

On-Chain Architecture

ChainLink has three smart contracts that make up its on-chain component: an order matching contract, a reputation contract, and an aggregating contract. If a user or entity wants to access external data, they issue a user contract to ChainLink and the network will process the request using the three contracts.

The contracts are responsible for matching the request with the appropriate oracle. The reputation contract checks an oracle provider’s performance metrics to verify its integrity. The order matching contract takes the service level agreement (SLA) on the user contract, logs it to the network, and takes bids from oracles. It then selects a bid based on reputation and finalizes the agreement. Lastly, the aggregating contract takes the chosen oracle provider’s response and determines the final result of the ChainLink query.

The on-chain contracts go through three steps:

1. Oracle Selection – The user hiring an oracle specifies the requirements needed for a SLA proposal, such as query parameters, reputation, aggregating contracts, and the number of oracles they require. They have to manually sort, filter and select oracles from listing services using the reputation contract along with data in the logs of past contracts.

2. Data Reporting – Once a new record is created, the off-chain oracles execute the SLA and sends the requested data back on-chain.

3. Result Aggregation – The answers that the oracles reveal are fed to the aggregating contract, which tallies the collective results and calculates a final answer. The validity of each oracle response is sent to the reputation contract, and the final answer is transmitted to the user.

Off-Chain Architecture

ChainLink’s off-chain component will initially consist of a network of oracle nodes connected to the Ethereum blockchain. The developers plan to support other smart contract networks in the future. The oracle nodes independently collect responses from off-chain resources as requested by user contracts, and their responses are aggregated via one of several possible consensus mechanisms into a global response that is returned to a requesting contract.

The nodes are controlled by the ChainLink Core, which handles scheduling, connections with common external resources, and other standard blockchain functions. Node operators can choose to add external adapters that allow them to offer additional specialized off-chain services. In exchange for their work, off-chain oracle operators are paid in LINK for finding and transmitting data.

Oracle Security and Decentralization

Maintaining oracle security and decentralization is one of ChainLink’s key aspects. As explained in the introduction, centralized oracles that gather information from one data source are problematic because the data source can be tampered with to send out false or fraudulent information.

ChainLink prevents faulty oracle nodes by distributing data sources and distributing oracles. When a user makes a request, the network sends the request to multiple off-chain oracles, all of which must harvest data from different sources. The system aggregates all the harvested information into a single answer, and then measures the answers provided by each oracle against one another to establish the most truthful one. Oracles that provide bad data damage their reputation and are penalized (losing LINK tokens) by the ChainLink network.

The process is not 100% foolproof because multiple data sources can have faults, or a cheating oracle can simply observe and copy the responses provided by another oracle, weakening the assurances provided by aggregation. ChainLink is working on several solutions to prevent this type of tampering. You can learn more from the project’s whitepaper.

ChainLink vs. Other Oracle Solutions

ChainLink believes the lack of highly secure and flexible oracle systems is a major impediment to the evolution of smart contracts. The most commonly used oracle services today are centralized, which is problematic because they create a centralized point of control and don’t meet the standards of trustless smart contracts.

Some oracle services attempt to solve that problem by relying on notarization as proof, but such attestation can’t be easily verified on a blockchain. Others rely on humans to manually input unstructured data, but human cognition is costly and slow. Manual-input oracles are also resource intensive, not real-time, and they can only handle a limited set of questions at any give time.

A final approach is to have data sources digitally sign their data so that a relaying server won’t need to be trusted. The requesting smart contract could simply check the signature on the data it receives to confirm its validity, but implementing such a system would require major changes to existing infrastructure.

ChainLink is specifically designed to fill the need for new oracle technology in smart contract systems. It prioritizes the following core values:

Decentralization for Secure and Open Systems – Decentralization is the basis of a blockchain’s permissionless nature. ChainLink wants to build decentralized systems and further enable permissionless development to create a thriving global ecosystem with long-term sustainability.

Simple, Flexible Modular Design – The ChainLink team adheres to the philosophy of building small tools that do one thing well. This approach to modularity not only makes ChainLink easily upgradeable, it also facilitates decentralization.

Open Source for Secure, Extensible Systems – ChainLink stands on the shoulders of many open source projects. Its developers value the community and pledge to continue developing ChainLink in an open source manner. They encourage testing, audits, and formal proofs of security, with the aim of creating a robust and secure platform that can support future innovations.

Buying, Storing and Selling LINK

LINK tokens are listed on Binance, Huobi, Mercatox, Vebitcoin, OKEx, Gate.io, EtherDelta, and COSS. As one of the largest exchanges, Binance carries the highest percentage of LINK daily trading volume.

LINK is an ERC20 token that can be securely stored on any wallet that supports the standard, including MyEtherWallet (MEW), Mist, Jaxx, Parity, MetaMask, and Exodus. You can also use hardware wallets like Trezor and the Ledger Nano S should also work fine.

Liquidity of ChainLink

ChainLink is one of the first decentralized oracle systems to hit the crypto market. Some would even call it an industry leader, and that has helped it maintain good market liquidity. ChainLink already has partnerships with zeppelin_os, Town Crier, Factom, Brave New Coin, Request Network, CEEK, Open Money, and SWIFT. All these collaborations make it a very promising project.

That said, the ChainLink team hasn’t done any significant marketing to promote the project, they haven’t released an official roadmap, and their communication on social media is fairly low. Perhaps they want their product to speak for itself, but by being so quiet, they’re slowly losing ground to emerging decentralized oracles.