What Is Chainlink?
Chainlink (LINK) is a both cryptocurrency and technology platform that enables non-blockchain enterprises to securely connect with blockchain platforms. Chainlink is middleware that connects blockchain-based smart contracts with external data, such as baseball scores or stock prices. Chainlink’s LINK currency is used to pay Chainlink network operators and collateralize the network’s smart contract agreements.
Chainlink is known as a decentralized oracle network or blockchain abstraction layer. Chainlink uses blockchain technology to securely enable computations on- and off-blockchain, supporting what it calls hybrid smart contracts. Enterprises that use Chainlink can access any of the major blockchain networks, including Ethereum, Solana, and Terra.
The Chainlink blockchain is hosted on the Ethereum platform, which uses the proof-of-work operating protocol. Chainlink is an open-source blockchain project, meaning that anyone can view the project’s code and contribute.
Key Takeaways
- Chainlink is a decentralized oracle network that connects blockchains with off-chain data.
- Chainlink uses hybrid smart contracts to integrate on-chain code and off-chain data infrastructure.
- Chainlink tokens—called LINK—are used to pay Chainlink network operators for retrieving and preparing off-chain data and performing computations.
The Chainlink blockchain can support the secure sharing of inputs, outputs, and computations. Some features of Chainlink include:
- Supports decentralized data feeds: Data from many sources can be securely collected and used for hybrid smart contracts.
- Provides verifiable sources of randomness: Applications such as games that require cryptographically secure randomness can use Chainlink.
- Enables automation: Chainlink smart contracts can automate key functions and event-driven tasks for enterprises.
- Supports cross-blockchain interoperability: Chainlink can connect blockchain platforms to support the exchange of messages, tokens, and specific actions.
Understanding Chainlink
Chainlink is a blockchain-based decentralized oracle network that was launched in 2017. Oracles are entities that connect blockchains to external systems, thereby allowing smart contracts to execute based on inputs and outputs originating off the blockchain.
While traditional oracles are centralized, Chainlink decentralizes the process of moving data on and off blockchains through the use of “hybrid smart contracts.” LINK tokens are used to reward Chainlink network operators for retrieving data from off-chain feeds, formatting data into accessible formats, and performing off-chain computations.
The Chainlink decentralized oracle network is a system of nodes that adhere to set protocols. Node operators are required to stake—agree to not trade or sell—their LINK tokens. Node operators set their own fees based on demand for the off-chain resource that they provide.
Chainlink node operators with the largest stakes are the best positioned to earn LINK rewards.
Because Chainlink allows blockchains to exchange data with off-chain systems in a way that is decentralized and tamper-resistant, the Chainlink oracle network has many use cases. Chainlink has been used to fairly distribute non-fungible tokens (NFTs), gamify personal savings, and facilitate recalibrations of cryptocurrency token supplies, among other applications.
Chainlink was created by Sergey Nazarov and Steve Ellis, who authored a 2017 whitepaper with Ari Juels. The network launched in 2019. LINK is an ERC-20 token, meaning that it is compatible with other currencies and smart contracts supported by the Ethereum platform.
How Does Chainlink Differ from Ethereum?
The Chainlink network in some ways is a complement to the Ethereum network and other blockchains. Chainlink can facilitate secure communications between Ethereum projects and a variety of off-chain data. Since Chainlink’s LINK token is built on the Ethereum platform, LINK is compliant with the Ethereum platform’s protocols.
Ethereum tokens can be used for purchases, to facilitate smart contracts, and to pay miners for operating the Ethereum network. Chainlink tokens have only a single use case, which is to pay node operators in the Chainlink network.
Chainlink’s staking requirement is similar to the proof-of-stake operating protocol. Ethereum currently uses the proof-of-work method, but is gradually transitioning to proof of stake.
The proof-of-stake mechanism rewards network participants for agreeing to not trade or sell their cryptocurrency holdings.
Goals of Chainlink
Chainlink aims to continue to grow by expanding its support for blockchain environments and facilitating new use cases for hybrid smart contracts. Because significant stores of data and records are not yet maintained within blockchains, Chainlink may have countless opportunities to connect blockchain networks with off-chain information.
In 2021, the Chainlink network secured more than $75 billion of value as it grew to include over 1,000 projects. Chainlink has a maximum supply of one billion tokens, of which about 467 million have been issued as of Feb. 2022.
Frequently Asked Questions (FAQs)
What can I buy with LINK?
LINK cryptocurrency is used to incentivize Chainlink node operators, rather than being designed for everyday purchases. These network participants, tasked with securely transferring data to and from blockchains, are paid in LINK.
Why is Chainlink popular?
The Chainlink decentralized oracle can connect many different types of data with many different blockchains, creating many potential applications for Chainlink. Chainlink could help to integrate blockchain technology with many industries and business functions.
Is Chainlink made by Oracle?
Oracle Corp. (ORCL) is a computer technology company specializing in database management. Chainlink is not affiliated with Oracle Corp. Chainlink refers to itself as a decentralized oracle network, with the “oracle” being a broad-based group of intermediaries that connect blockchains with off-chain information systems.