Chainlink is a distributed computing program built on Ethereum and displays all the high-quality data from smart contracts. Smart contracts are software programmed on the blockchain that automatically performs their assigned functions, eliminating third parties and other cumbersome trust processes. It is also impossible to subsequently manipulate or change smart contracts. Unfortunately, they also have their limitations. Their great weakness is that they cannot independently access data outside the blockchain. If a smart contract wants to access this data, it must be connected to oracle, the source of the information, and if it only uses information from centralized oracle, the reliability of the data will be directly affected.
Chainlink is a project that aims to solve the problems associated with the centralized oracle used in smart contracts, and it does so by creating a distributed set of information sources, all of which strive to generate high-quality news. What Chainlink has done is develop a system whose algorithm ranks information sources based on the reliability of their data. In such a system, sources are rewarded with LINK tokens from the platform. Those who produce high-quality information earn LINK tokens, while those who produce low-quality information lose these tokens. Definitely, the system developed by Chainlink encourages the production of high-quality information for just contracts.
History of Chainlink
Chainlink’s history dates back to 2014, when a non-profit organization called SmartContract Ltd was founded behind the project, with Sergey Nazarov as its president. He is one of the best-known people in the cryptocurrency world. The Chainlink project quietly developed for several years, until it organized a crowdfunding, or ICO, in 2017, raising $32 million in funding! Chainlink launched on the Ethereum blockchain in 2019. It was a solid year for them, as they managed to consolidate important deals (Google, Oracle and Microsoft), and appeared on the world’s largest cryptocurrency exchanges. 2020 was also an important year for Chainlink. It established itself as the world’s leading Oracle solution and one of the largest cryptocurrencies in terms of market value.
How does Chainlink work?
Chainlink is an oracle network built on Ethereum. It has its own token called LINK, which is the basis of the entire ecosystem, so it plays a key role in its operation. The maximum number of LINK tokens is predetermined.
In practice, Chainlink acts as a link between smart contracts and the off-chain data they need. It provides a fully decentralized platform for oracle, which play an important role in the trustworthiness of smart contracts, and that means they must provide information of the highest possible quality, since trustworthy oracle earn LINK tokens for their performance. Weak information sources lose their coins. LINK is the integrated currency in the Chainlink network, and the only currency used by the core functions of the ecosystem.
Technically, the Chainlink source consists of two distinct parts,
- one located inside the blockchain,
- the other – outside of it.
The inner part of the blockchain can be thought of as the data transfer contract between oracle and the smart contract. The outer part is called a node, or operator. Nodes are rewarded for their work in the form of LINK tokens. The Chainlink network includes numerous nodes that transfer data off-chain via oracle. The process is completely decentralized, which eliminates security problems that can occur when using a centralized method. In addition, Chainlink’s software checks the quality of data generated earlier and rejects nodes that produce low-quality and possibly unreliable data. Although it runs on the Ethereum blockchain, its reach is not limited to it.
In practice, Chainlink is distributed computing software whose services can be deployed on any blockchain. As of 2019, more and more projects are integrating Chainlink into their network, and today its technology serves as the basic building block of many different projects.
For example, almost all major decentralized finance (DeFi) applications use Chainlink.