What Is Chainlink (LINK)?
Chainlink is one of the most commonly used projects associated with the world of cryptocurrencies. A decentralized oracle service that can be utilized by Ethereum's smart contracts to supply data that is outsider to the smart contract. Therefore, there is a direct connection between the blockchains and the real world.
ChainLink might be thought of as a committee of wise men and women who are always seeking to determine what the closest thing to truth would be. The question is, why can they be deemed more trustworthy than the rest? Let us examine.
Introduction
The blockchain automates agreements by using smart contracts. When evaluating the information, they evaluate if certain conditions are met, and they then execute the agreement. However, in this case, this may be a problem.
Blockchain does not have an easy way of accessing external data that is reliable. There is one of the great challenges facing smart contracts as it is very difficult to connect off-chain data with on-chain data.
A decentralized oracle service is what Chainlink attempts to provide in order to help solve this issue. A smart contract can understand data from a data source when a piece of software translates it into a language that smart contracts can understand. Our article Blockchain Oracles Explained explains in more detail what the Oracles are and why they are valuable.
What is Chainlink?
A blockchain-based decentralized oracle network, Chainlink, enables smart contracts to communicate with external data sources using blockchain technology. It is possible to make use of APIs, internal systems, or any other type of external data feed if you so desire. This oracle service on the network is paid for by a token known as LINK, which is a token based on the ERC-20 protocol.
How does Chainlink become decentralized? Firstly, we need to make sure that we understand what a centralized oracle is to begin with. This is easy to guess - it is a single source of external information that is made available to smart contracts. There is only one source of external information. And this can present a lot of problems. For instance, what happens if that single oracle offers false or inaccurate data? This will result in the failure of all the systems that depend on it. It is often referred to as the Oracle problem - and this is what Chainlink is trying to solve.
How does Chainlink work?
A network of nodes is used by Chainlink to provide data trusted and reliable to smart contracts. Assume that a smart contract wants real-world data to execute, and it goes out and asks for them. This event is registered by the Chainlink protocol. The protocol forwards it to the Chainlink nodes for them to offer their “bids” on the request.
A powerful feature of Chainlink is that it can validate data from multiple sources at the same time. Chainlink has developed a reputation management system that allows it to determine with relatively high accuracy which sources are reliable. As a result, the accuracy of the results can be greatly increased and smart contracts will be protected from all kinds of attacks.
how does this relate to LINK? The smart contracts that request the data pay the Chainlink node operators in LINKs for their service in exchange for the data they are providing. In order to set prices on a node, the operators must take into account the market conditions for the data.
Moreover, there is a long-term commitment to the project by node operators due to their stake on the network. As with Bitcoin, Chainlink nodes operate under the same cryptoeconomic model, and therefore are incented to act in a trustworthy manner instead of being malicious.
Chainlink and DeFi
Since Decentralized Finance (DeFi) has gained more popularity over the recent years, high-quality Oracle services have become more and more popular. Because most of these projects use smart contracts to some extent in one way or another, and they also need external data to be able to run properly, some data needs to be external as well.
DeFi platforms that rely on centralized Oracle services are at risk of being attacked in a wide range of ways, including flash loan attacks by manipulating Oracle data. As long as centralized oracles are common, this type of incident will likely continue to happen.
Some people may be inclined to believe that Chainlink is the one solution that can solve every problem and this may not be true. While Chainlink's technology is being used in numerous projects such as Synthetix, Aave, and many more, new types of risks are also being introduced. I believe it may be the case that too many platforms rely on the same Oracle service, so if Chainlink suddenly ceases to function properly, this will affect all of them.
This may seem to be an unlikely . In spite of the fact that Chainlink operates on a decentralized oracle system, it is known that there is no single point of failure associated with it. Even so, Chainlink nodes suffered from a “spam attack” in September 2020, where an attacker possibly stole up to 700 ETH from the wallets of the node operators. The attack was quickly found and resolved, but it serves as a reminder that not all systems are completely resistant to malicious activity all the time
LINK supply and issuance
It is estimated that Link has a maximum supply of 1 billion tokens. About 35% of them were sold during the ICO which took place in 2017. Around 300 million have been sold to the company that founded the project.
As opposed to many other cryptoassets, LINK's circulating supply does not increase through mining or staking processes, as is common with other cryptoassets.ā
How to store LINK
The LINK chain is not a native blockchain of its own. As a token, it exists on the Ethereum blockchain. It is important to note that LINK tokens follow the ERC-667 standard, which is a continuation of the ERC-20 standard.
What is LINK used for?
As a way to offer a bid to the intended buyer of the data, Chainlink operators can stake LINK with their own funds. If the node operator is able to "win" the bid, the operator is obliged to provide information to the smart contract fulfilling the request from the node operator. LINK tokens are used as a method for payouts for operators of node sites.
Taking this approach encourages the node operators to keep accumulating nodes in the network. But why? As they accumulate tokens, they will have access to bigger and bigger data contracts. In the case that a node operator chooses to break the rules, they will lose their LINK tokens as a result of this decision.
Who are LINK Marines?
The common practice for crypto projects is to give a nickname to the members of their communities. Chainlink has been one of the few companies to have successfully implemented this strategy with their Link Marines program.
The use of community-building tactics such as these is becoming an increasingly effective marketing technique in the cryptocurrency industry. A core group of supporters can drive engagement and attention to the project on social media, which can be reflected in other metrics.