What is Chainlink (LINK)?
Within blockchain technology, there is a recurring problem that can be summarised in the word ‘isolation’. More and more projects appear as the days go by, and some of them manage to instill a sense of presence that lasts. However, even Bitcoin and Ethereum are closed off from other blockchains, without functionalities that allow them to interoperate.
Platforms like Polkadot and Avalanche perform the function of bridges for blockchains so they can operate on a shared framework without lowering the protective layer of their existing security protocols. Another such system is Chainlink, enabling chains to interact with each other, and it has also introduced a way for blockchains to interact with external data sources securely at no cost of speed through its Oracle network service.
The road, the team, and what lies beyond
Established in 2014 as a startup called SmartContract, Chainlink has been working to harness blockchain technology, emphasising strongly on smart contracts, in order to level the ease of usage for all participants in the industry who wish to operate with contractual agreements in an efficient manner.
Co-founder and CEO of the company, Sergey Nazarov, with several blockchain products behind his back – Secure Asset Exchange (SAE) and CryptoMail – worked on Chainlink alongside Steve Ellis who currently acts as CTO of the company. He has also worked in the SAE after gathering experience as a software engineer in Pivotal Labs, which proved core to the development of Chainlink. Ari Juels, responsible for the whitepaper of ChainLink, written together with Nazarov and Ellis, is the computer science professor from Cornell Tech University and the director of IC3, performing the role of an advisor to the crypto project. Andrew Miller, former associate professor of computer science at the University of Illinois and an advisor to Tezos and Zcash, and Hudson Jameson, a prominent Ethereum developer, also act as advisors.
On its ICO in September 2017, Chainlink had 35% of 1 billion coins of its cryptocurrency prepared to raise $32 million from the sale for ETH, selling each LINK for 0.11 USD, and reaching the goal safely. Just a month later, the platform had already partnered with the SWIFT banking system, with the SmartContract company developing a proof of concept for bond coupon payment automation through Chainlink. It pulled off-chain interest rate data from Barclays, BNP Paribas, Fidelity, Santander, and Societe Generale banks and generated an ISO20022 SWIFT message needed to make the payment. Later partnerships include that with Zeppelin OS, IC3’s Town Crier, The Request Network, and over 2000 more from varying industries, all of which focus on data processing in different forms, such as storage and verification.
The moving mechanism behind Chainlink
Chainlink is the method used to connect the blockchain ecosystem to external applications.
The solution’s foundations are built on oracles that limit trust in individual parties and function in a decentralised infrastructure with an integrated API. There are two categories that core Chainlink functions can be segmented in – on-chain and off-chain with plans for cross-chain transactions to be added to the already existing Ethereum-working solution.
On-chain architecture is Ethereum-based and relies on smart contracts for most of the part. Three components are present – the first one is a reputation contract, keeping track of oracle metrics; the second one is an order-matching contract, which utilises node bids; the third one is an aggregating contract, collecting node answers and converting them to a final result required for the user query made. It also supplies metrics to the first component.
Thus, on-chain functionalities are performed in three phases, starting from oracle selection, going through data reporting and ending with result aggregation. The smart contract creator or the end user controls oracle selection by specifying the contract criteria, which could include type of information, node reputation and collection to perform role assignment, and so on. Users have a listing service that facilitates the process off-chain before being added on-chain and nodes are determined automatically based on how suitable they are for the assignment through the order-matching contract.
After this is complete, nodes carry out the assignment, processing data using external adapters, signing responses, and returning answers. During the process, nodes may use API endpoints as well. The final step is to aggregate the results from nodes and calculating an answer to the smart contract creator’s query. Oracles essentially perform the function of conduits to provide responses with information on node timeliness and validity, which then goes through the aggregating contract. And so, the proof-of-reserve algorithm that Chainlink utilizes is put into action.
External adapters for third party API endpoint extension can be utilised during this process. To read off-chain data securely, Chainlink’s core software translates it for on-chain sub-tasks of assignments that are processed by the same software. External adapters carry an important role throughout both on-chain and off-chain solutions, as they connect API endpoints, which is basically the link needed for blockchain and real-world applications to establish contact, and to ensure stability, all of them are written in Chainlink’s schema format.
LINK and smart contracts
Smart contracts on Chainlink are designed to work for everything. Oracles are the translation tools that allow blockchains and external platforms to perform queries from one another and provide responses. Anyone can run an oracle with the on-chain identity and reputation they can receive by joining the network, giving them a level of reliability that changes according to their actions.
Nodes stake LINK tokens and those are forfeited if ‘bad’ data is provided by participants, also hurting oracle reputation. Whoever joins the network, be it an individual or an institution such as an API or e-signature provider, will be treated equally by the system. As an ERC20 token built on the Ethereum platform, LINK has extra ERC223 functionalities of “transfer and call” for single-transaction receipt and processing of tokens. It is the native Chainlink network token that incentivizes the ecosystem through its usage.
So far, the course it has taken is set to be long and eventful no doubt, and in the future, who knows, perhaps it could be what everyone uses as well.