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What is Chainlink? Smart contracts, blockchains, oracles… have you ever wondered how they all LINK? Puns aside, by integrating data from the outside world with blockchain-based contracts, smart contracts undeniably have an exciting future ahead of themselves. But what role does Chainlink have amongst all of this?
Although launched in 2017, the origins of Chainlink trace back to 2014. Its founding company, SmartContract, set the goal to tackle the problem of smart contracts needing to rely on external data sources to properly execute their terms. In an attempt to resolve this issue, the SmartContract team developed Chainlink, which allowed smart contracts to connect to feeds from any external data source.
Chainlink quickly gained traction amongst cryptocurrency investors as its initial coin offering (ICO) raised the equivalent of $32 million. During the ICO, the company sold 35% of the 1 billion unit supply of Chainlink’s cryptocurrency, LINK. Of the remaining units, SmartContract retained 30% for the development of the Chainlink blockchain network. Node operators can access another 35%, as an incentive for them to deliver real-word data.
Chainlink aims to incentivise a decentralised network of data providers (termed ‘oracles’). This is to provide accurate, real-world data to smart contracts, built on blockchains. Like all real-world contracts, the parties execute the terms once the predefined conditions have been met. For instance, if someone takes out insurance on one of their assets, they may receive a payout if that asset’s value falls below a predefined price. Chainlink seeks to facilitate this transfer of real-world data by providing an incentive to data providers, this being the LINK cryptocurrency.
The LINK cryptocurrency is the native cryptocurrency of the Chainlink network, acting as the only currency used for network operations, such as payment to oracles for their service. In this manner, the value of the cryptocurrency stems from its ability to ensure the successful execution of smart contracts.
Chainlink’s process in bridging the gap between sources of external data (for example, APIs reporting on market prices) and smart contracts can be divided into three steps. Firstly, users of Chainlink create an agreement that specifies their set of data requirements, which matches with a data provider (termed ‘oracles’). The user’s agreement containing their data requirements and LINK tokens are submitted into an Order-Matching contract, which ultimately receives data from oracles.
Next, oracles connect with external data sources to retrieve the real-world data per the specifications in the user’s agreement. During this step, data is processed and sent to contracts running on the Chainlink blockchain.
The final step involves validating the accuracy of the data against the sum of the data received. Simply put, a tally of the responses received is conducted and then used in returning a weighted score. This weighted score, which is returned to the user, reflects the validity of each response with respect to the sum of all the data received.
The LINK token has gained a significant amount of popularity since its inception in 2017. Most of this popularity stems from investors realising the future prospects of Chainlink’s technology gaining mainstream adoption. The applicability of smart contracts is broad, and thus Chainlink would be able to capitalise on future uptake trends.
Compared to other prominent cryptocurrencies such as Bitcoin and Ether, LINK is more speculative in nature. Having said that, it does have a significant market capitalisation and follower base, which provides market depth and liquidity. This means that should an investor want to buy or sell LINK, it can be done so with relative ease.
With these factors in mind however, some critics do suggest the LINK token is simply not necessary to resolve the issues Chainlink is seeking to address. Rather, critics claim that the project could have used Ethereum as opposed to developing a token in their own right.
In summary, given the potential future prospects of smart contracts and Chainlink’s ability to resolve one of their key challenges, it would be ideal to hold LINK as part of a diversified crypto portfolio.
Look no further, Coinstash is one of the few Australian platforms that allows its users to buy LINK with AUD. We have deep liquidity into USD markets, therefore the ability to provide our users with some of the best prices available.
About the author
Ting is a finance professional and an accomplished investor. Ting is well-conversed in financial markets, as well as having a background in taxation and law. Having previously worked for a top-tier accounting firm and an US-listed fintech company, Ting decided to pursue his passion in cryptocurrency in 2017 by joining forces with high school friend Mena.
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