Smart contracts have been one of the biggest reasons for the growth and expansion of cryptocurrency.
In 2013, Ethereum’s white paper was unleashed with smart contracts — a new way of implementing blockchain tech. This single-handedly took crypto beyond just currency and inserted it into real-world marketplaces.
Smart contracts and Ethereum changed the landscape for crypto entirely, with the majority of cryptocurrencies owning their very existence to Etherem. This includes Chainlink.
The Chainlink proposition is quite simple. They take the basic functionality of smart contracts and add a layer of security and practicality.
This is because they say that either side of a smart contract the data is not kept securely, or it isn’t necessarily all of the data needed to automate a process.
This is because:
Chainlink is best visualized as a bridging platform. It allows companies to move data securely to a blockchain for automation and function. And then, when the data is no longer needed on the blockchain, it's moved back in the same secure fashion.
They call these bridges “Oracles’ and the payment needed to facilitate function on the Chainlink network is called LINK.
Of course, things are more complicated than that. We’ll get into the details below. But for introductory purposes, that is why Chainlink exists. And broadly, what it does.
Chainlink operates a relatively small company structure, with a few core team members and a handful of advisors.
Here are the two main creators:
SERGEY NAZAROV - CEO
Sergey Nazarov is the public face of Chainlink as well as the creator credited with the original Chainlink vision.
He previously worked in investment banking and left his role to pursue cryptocurrency in 2011. From there he was presumably a big Bitcoin and Ethereum fan, and it is fair to say that when Ethereum first came to market, Chainlink as a project also began. In 2013, Nazarov set up a company that was designed to specifically work on smart contract technology.
It would take a good four years before the project was unveiled and Chainlink was launched in 2017.
Nazarov also worked as an investor in cryptocurrency during the four-year development time and based his company in the Cayman Islands. Nazarov is a shrewd investor with a keen eye for gaps in the market that can turn him a bigger profit.
STEVE ELLIS - CTO
Steve Ellis worked for Pivotal Labs (as well as the lead software engineer Dimitri Roche) before leaving the company to follow a cryptocurrency dream.
He had already been active in the Bitcoin and Ethereum community and remains a keen investor in both of those currencies.
He likes to see the cryptocurrency community as a big happy family that is working towards a common goal of a completely functional and decentralized currency.
The Oracle Problem
The Oracle problem is still an issue for Chainlink, though it is often masked in a much better way than it was when it was first on the original SmartContract.com platform.
Here’s a basic breakdown of what the Oracle problem is and what Chainlink is doing to try to rectify it.
WHAT IS AN ORACLE?
Blockchain smart contracts automate processes, tasks, payments and verification of data without needing any external information or third-party tech. This is how they were designed to be used by Ethereum.
Essentially Ethereum takes information from the blockchain, processes it through a smart contract, and the information that results from the contract completing is then stored on the same chain. So it never leaves the blockchain.
In this respect, data is neither gained nor lost throughout the smart contract process and the data input is simply changed by the smart contract to get the correct output, providing that all information going into the smart contract is correct.
Chainlink’s big proposition is a way of implementing smart contracts while also using third-party information (information not stored on the blockchain).
This also means that the resulting data will need to be returned to the third party, or as we defined above – “bridging” off the smart contract.
Oracles are the process Chainlink uses to get the data to and from the third-party source.
WHAT’S THE PROBLEM?
Simply, an Oracle is the function that carries information to and from a smart contract.
The issue is that while everything on a blockchain is verifiable and works on a fairly trust-less basis — any information carried on Oracles is not verifiable and requires trust.
The problem is really two-fold:
First, cryptocurrency blockchains are unable to access external data by default.
Second, the use of any centralized data feeds would nullify the decentralization of the smart contract or application using the data feed. Because it would have a single, centralized point of failure.
This means that while Chainlink takes advantage of the trust-less smart contract system, it’s adding a layer of complete security breakdown at either end. This damages the integrity of the smart contract.
After all, the idea of the smart contract is to automate data processing. In order to do that, the user has to have faith in the integrity of both the data going in and data going out.
Thus, Chainlink started out with an Oracle problem.
What’s the answer?
Naturally, the solution to this problem is a decentralized data set, provided by dozens of trusted entities, given economic incentives to fetch the data being requested by a smart contract.
This is essentially what Chainlink is. It’s the “middleman" between real-world data and data on a cryptocurrency blockchain. As such, Chainlink has both on-chain and off-chain components.
LEADING THE SPACE
More than 80% of dApps in the crypto space now require an Oracle. This should not come as a surprise — if you want to build valuable dApps with real-world use cases, you’re going to need valuable data…
Data like asset prices, weather, and information about the outcomes of events, like sports games and elections. Those have to originate from OFF the blockchain first, then come ON somehow in a decentralized way if you’re going to still have a decentralized application that uses that data.
That’s why Oracles are needed. And the tech is evolving. Some people argue oracle cryptos are some of the most valuable on the crypto market.
And Chainlink is known as the current leader in the Oracle space.
Chainlink — Overview
Here’s an overview of Chainlink, how it works with some technical insights.
How Chainlink Works
With Chainlink, the on-chain architecture is not super complicated.
In the whitepaper, about 5% of the paper is dedicated to architecture. With good reason. Chainlink is a pretty basic ERC20 token.
The blockchain itself is designed very simply to facilitate data movement using the Oracles, and this is done using LINK.
Then, it goes further and has off-chain architecture — which is where Chainlink’s strengths are at the moment and why it was so important that Chainlink integrated with Ethereum mainnet.
The off-chain architecture works in a similar way to plugging in a device. You plug in the Chainlink blockchain to a smart contract platform like Ethereum, and then the other side of the oracle is plugged into a third party that provides the data.
Basically, Chainlink is the crypto “middleman.”
And apart from some security aspects, that is exactly how Chainlink works.
Off chain, Chainlink is an ecosystem of Oracle nodes that connect to cryptocurrency blockchains like Ethereum.
On chain, specifically on Ethereum, Chainlink is a series of smart contracts that allows developers to request data for their dApps from the aforementioned Oracle nodes.
Oracle nodes are humans that get paid a small fee in exchange for answering the request of data. To keep it decentralized, many nodes who don’t know each other do this at once.
The LINK token is used to pay Oracle nodes for data feeds, and will eventually also be used for staking by Oracle nodes to be sure they provide consistent, high-quality data feeds.
There are dozens of Oracle nodes for each data feed, and developers can choose to use one or multiple nodes based on their personal preferences, or the competitive prices offered by nodes via their bidding process.
The Chainlink Mainnet went live in May 2019, less than two years after its September 2017 ICO, which raised $32M worth of ETH.
Since that time, Chainlink’s ecosystem has grown exponentially, along with the valuation of the LINK token.
Today, Chainlink provides 75 price feeds to over 300 smart contracts and decentralized applications in the cryptocurrency space.
But this is just scratching the surface of how much Chainlink has accomplished.
PROS Of Chainlink
The concept of Chainlink is one that provided the very first simple solution to adding functionality to smart contracts. This is especially important as blockchain tech grows and companies become more reliant on both blockchain and the smart contract functionality to automate processes.
For those who read my papers regularly, you will know I occasionally mention the potential of blockchain tech and smart contracts in the context of real estate and property sales. Chainlink would enable such businesses to utilize smart contracts by transporting data from property deeds, local authority planning and regulation data as well as data relating to the mortgage to a smart contract.
In terms of the scope of the project, Chainlink have provided a solution for this problem.
What chainlink has accomplished over the past few months takes most crypto projects years to match. This is mostly thanks to Chainlink’s community grants program —which is a program that rewards developers in crypto for the creation of critical additions to Chainlink ecosystem, like high-quality data, or the launching of key services around the Chainlink Network.
Given the incredible dedication of participants of this project, there's still more to come for Chainlink.
For the Oracle system to work correctly and in a decentralized way, the data provider who is feeding data as a “node” to the blockchain has to put up collateral.
This is to avoid the risk of the data providers colluding and providing faulty data, to take a stake in the contract outcome instead of just being paid as a data provider.
That's why the collateral has to be more than the amount of the contract payout. The person working the node gets their collateral back after the job is done.
The collateral has to be in LINK.
The node operators need to hold a lot of LINK, and continuously pull them off the market to secure contracts. They’ll be doing much more buying, holding and staking than selling.
The tokenomics of holding LINK works for the benefit of the desired holder (Node Operators).
There are quite a few other use cases of Chainlink which were too exhaustive to cover in this preview - but could have a large effect on supply chain, Internet of things, trade, insurance, and all other collaterals needed.
During the ICO for LINK, Chainlink announced a total and maximum supply of 1,000,000,000 LINK tokens. The current supply at the time of this writing is 419,009,556. That's about 42% of the total supply.
According to the ICO documentation, 35% of the total token supply will go towards node operators and the incentivization of the ecosystem.
Another 35% of LINK tokens were distributed during public sale events.
And lastly, the remaining 30% of the total token supply was directed towards the company for the continued development of the Chainlink ecosystem and network.
The more reliable data sources we integrate into our decision-making, especially when those decisions are executed by programs, the more efficient and productive those decisions become.
In the future, smart contracts may automate away the menial parts of life. This makes more room for what matters.
Chainlink is leading the way in Oracle development -- which, if they do what they promise, will no doubt lead to more adoption.
Chainlink is not slowing down, either - they’ve been taking on tons of partnerships:
For example, they recently announced a new partnership with Trust token — which they are aiming to set a new standard for stablecoins going forward. Chainlink may also be developing a new service where they provide “proof of reserves” for stablecoins like Tether.
Chainlink’s expansion into other crypto blockchains is also going to introduce some interesting situations the crypto world has not seen yet. We might even soon see the introduction of the LINK token being stored on other blockchains.
This data report is provided by Keystone Investors Research. Keystone is the only Cryptocurrency research firm that is Officially partnered with a government regulated Cryptocurrency Trading Platform.
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