Prominent blockchains like Bitcoin and Ethereum have existed as standalone networks. Interoperability, though a significant pillar of blockchain, is still a challenge 11 years after the inception of the first blockchain. Interoperability enables developers and users to access varying functionalities of different networks without compromising both networks’ integrity.
Bitcoin introduced the idea of decentralization to the world. Ethereum, on the other hand, created a development platform for decentralized applications and smart contracts. Combining the features of the two blockchains is the only way the decentralized ledger technology can transform lives.
ChainLink, as you will find out in this article, is doing precisely that, enabling interoperability between blockchains and external applications.
What is ChainLink?
ChainLink is a decentralized network middleware that connects blockchains to other blockchains and critical external resources such as web APIs, data feeds, and bank records. It was developed in June 2017 by SmartContract – a San Francisco-based Fintech company. The blockchain uses an Oracle network to create a secure, decentralized solution.
Essentially, ChainLink makes blockchain technology more lively. By allowing blockchains access to off-chain resources, the network lets smart contracts react to real-world events and automatically execute agreements faster and efficiently.
How it Works
The platform consists of a decentralized network of Nodes that represent data purchasers and providers.
The ChainLink acts as a bridge between two separate components in the network,
- On-chain component
- Off-chain component
The on-chain component of the platform is built on the Ethereum blockchain. Oracle contracts are mostly involved in retrieving data within the node in this component.
Oracles are programs within blockchain networks that fetch, retrieve, and verify external data on smart contracts. Oracles use web APIs, and market data feeds to perform their tasks.
When a request is made for some off-chain data, the component transfers the request (contract) to the ChainLink. ChainLink then translates the contract into a blockchain readable contract and matches them with suitable oracle service.
A ChainLink contract has three main parts:
- Reputation contract – selects oracle from existing oracle-service-provider performance metrics.
- Order-matching contract – logs the user’s request on the ChainLink, collects bids from oracle service providers, and selects the providers with regards to reputation contract analysis.
- Aggregating contract – gathers all responses from the oracle providers and computes the final answer.
The off-chain component of the ChainLink is made up of oracle nodes connected to Ethereum blockchain. The component is responsible for harvesting responses to off-chain requests.
The component then sums up the individual responses into a single response before converting them to a contract. ChainLink Core, a significant element of ChainLink, translates the off-chain data, and dispatches it to on-chain oracle.
The LINK Token
LINK is the native token of the ChainLink network. It’s an Ethereum-based ERC-20 token with additional ERC-223′ transfer and calls’ functionalities.
LINK is used in the network to compensate Node operators. Operations in the system include retrieving data from the off-chain data sources, turning the data into smart contracts readable format, and off-chain computations.
LINK token derives its value from operations and use-cases: the more the off-chain computations, the more valuable the token. Consequently, the more the use cases of ChainLink, the higher the value of LINK token.
ChainLink Use Cases
ChainLink’s ability to connect in-chain and off-chain smart contract features presents dozens of real-world applications. Some of the network’s use cases include:
- Insurance smart contracts – Data feeds from off-chain sources such as IoT devices can help define insurable events and determine claim payments.
- Trade and markets – Data from ERP and GPS systems help confirm the fulfillment of trade contracts. ChainLink can be used to make the process of acquiring data fast and effective.
- Securities contracts – ChainLink can be used in smart contracts and bonds based on interest rate derivatives. It acts as a middleware linking bond systems to financial websites and uses APIs for reporting market conditions, e.g., market prices.
ChainLink network can also be used in supply chain smart contracts, health smart contracts, payments, etc. In short, ChainLink applies to any smart contract that requires reliable off-chain data.
The network offers blockchain interoperability with significant data sources such as IoT sensors, biometrics sensors, market price feeds, websites, and random generators.
Why use ChainLink?
The following are the benefits of using ChainLink.
- High speed – ChainLink is one of the fastest blockchains at 1,000–10,000 TPS with a 5 secs latency.
- Low fee – Utilizing LINK is exceptionally economical. ChainLink doesn’t charge a transaction fee. The withdrawal fee (below $1) and the gas fee is equally competitive.
- Scalability – ChainLink uses the Delegated Proof of Stake (DPOS) consensus protocol, the most scalable blockchain consensus mechanism. This explains ChainLinks 2 million transactions in 10 days and the high token adoption.
- Secure platform – ChainLink network has several security layers that make it one of the most secure blockchains. The security features include complete decentralization, tamper-proof smart contracts, and end-to-end encryption of transactions.
Interoperability was one of the visionary features of Satoshi Nakamoto’s blockchain. Satoshi envisioned a network that can be integrated with the outside world and become a part of life. Unfortunately, all the blockchains that came after Bitcoin didn’t share Satoshi’s vision; they all came as independent networks. Today, cryptocurrencies developers have only one goal; beat Bitcoin or Ethereum!
None of these developers saw the potential that the ChainLink team now sees.
ChainLink is a viable solution to a real blockchain challenge. Its unique vision to transform smart contracts using decentralized oracles has significant real-world impacts. The project is further backed by a committed team pushing it to top positions in the market.