What Is Chainlink?
Chainlink is a Web3 services platform. Its main function is as a data oracle to some of the world’s most popular blockchains, providing them with accurate, decentralized price data—essential for the DeFI ecosystem.
Chainlink is the largest decentralized oracle network powering the leading smart contract blockchain ecosystems. Its product offerings include tamper-resistant off-chain services that expand the use cases of smart contract technology.
Hazim, C. (2023)
Oracles on Chainlink collect real-world data (i.e., off-chain data) and provide it to on-chain consumers, such as smart contracts. Getting accurate, valid, off-chain data in the decentralized Web3 ecosystem is a challenge.
Chainlink leverages smart contracts for handling, validating, and delivering data while relying on honest node operators to keep the network decentralized and running smoothly.
All of Chainlink’s services run on the Chainlink blockchain network, which is powered by the LINK token. The LINK coin is central to the network’s security and rewards for providing data (i.e., the oracles).
How Does Chainlink Work?
Chainlink takes data from off-chain sources, passes it through a series of smart contracts to prepare it for consumption, and finally delivers it to the smart contract that requested it.
The process is quite complicated, but it can be broken down into three main steps:
- Data validation: Chainlink’s reputation smart contract scans incoming data and validates its accuracy and legitimacy.
- Order matching: Next, an order-matching contract matches incoming data requests with the right data sources.
- Data aggregation: In the final phase, data retrieved for the same request can come from multiple sources at the same time. The aggregation smart contract finds the most reliable version of the data and delivers it to the consumer.
With a few more steps before and after those described, the Chainlink network successfully provides outside data to smart contracts, processing and preparing it for use in Web3.
Who Is Using Chainlink? (Real-world Examples)
Numerous real-world examples exist of companies and crypto projects partnering with Chainlink as data providers and users.
For example, the AP has partnered with Chainlink to bring their economic, race call, and sports data on-chain. Google’s BigQuery is doing the same, enabling smart contracts to access extensive datasets for on-chain applications such as prediction marketplaces, futures contracts, and enhanced transaction privacy.
On the user side, it’s difficult to find data-heavy Web3 applications that don’t use Chainlink — especially the ones requiring accurate price data. Beefy Finance uses Chainlink’s CCIP, Paxos, and providers of Pax Gold, which use Chainlink’s decentralized data feeds. OpenOcean integrates Chainlink Keepers — their smart contract automation service.
What Is LINK and How Is It Used?
The LINK coin is Chainlink’s native cryptocurrency. Data consumers use it to pay data oracles and as collateral to protect against dishonest network node operators via staking.
LINK has a maximum supply of 1B and was launched in 2017 during the ICO boom.
Understanding the Distinctions Between Chainlink and Ethereum
Chainlink enjoys much of its success thanks to Ethereum’s massive adoption and market dominance.
It started out by providing data to Ethereum applications and has since grown to become the premier data oracle provider for the crypto space.
Chainlink allows for the integration of smart contracts, but they can not be deployed directly on the blockchain. Like Ethereum, it uses a Proof-of-Stake (PoS) consensus mechanism and has a utility-first cryptocurrency.
However, Ethereum is a much older and much larger project than the Chainlink network. It has a bigger developer community, many more users, and is arguably more decentralized.
Ethereum serves as an all-purpose smart contract blockchain designed to develop any kind of decentralized application. In contrast, Chainlink mainly focuses on data-centric use cases.
Hazim, C. (2023, March 14). Chainlink: The basics. Global X ETFs Research.
https://www.globalxetfs.com/content/files/Chainlink-The-Basics-US-Final.pdf
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