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What’s Chainlink (LINK)?
Chainlink is a project used in the cryptocurrency space, Ethereum. Chainlink has become more common to be used because it connects all the decentralized blockchains with the real world. Chainlink is an oracle service bringing external data to smart contracts.
Smart contracts are the extra data stored in the blocks of the blockchain. They check some requirements in information. Unfortunately, a problem occurs. These extra data are difficult to be connected and blockchains aren’t able to do so. This difficult connection has a huge impact on the outcome and needs an operational solution.
Chainlink becomes the solution. It is a decentralized oracle system that can connect off-chain data to on-chain data, as a bridge. In this system, an oracle is a software transforming data and smart contracts in an understandable language to each other.
Chainlink itself is decentralized with blockchain. It’s a network itself. To use the services, you need to pay LINK, an ERC-20 token. An oracle duty is to provide accurate data once an assignment sets to them. The system is programmed to reward LINK, as a cryptocurrency, to nodes following the rules and providing worthy data.
Since 2017, once Chainlink stepped up, they successfully beat Ethereum (ETH), a superior blockchain network, in market activity. In 2020, Chainlink is updated to support almost all of the blockchain-based smart contracts.
Chainlink creation history
In June 2017, a company named SmartContract.com, decided to create LINK network and within a month they successfully launched their first version.
In September 2017, Steve Ellis and Sergey Nazarov, company co-founders, with the help of Ari Juels, an advisor to the company, published Chainlink whitepaper. Chainlink whitepaperv is a decentralized oracle protocol that runs on top of the Ethereum blockchain.
It is also said that these three researchers, Steve Ellis, Sergey Nazarov and Ari Juels, strated their project in September 2014. These trio came together to create a communication bridge beteen on-chain and off-chain worlds. They also wanted to create a decentralized bridge with the help of blockchain technology.
About 1 billion tokens were produced. 35% of tokens were just for the use of node operators, another 35% with the value of $32 million were sold to raise LINK cryptocurrency value (LINK team saved an initial coin offering (ICO)), and the other 30% was hold by SmartContract.com to be used for developments.
Chainlink successfully attracts investors to its capabilities while it wasn’t performed yet. Because of the attentions it drew, that $32 million financed the project amazingly great. The first tests were performed greatly and that results helped investors to trust more in Chainlink’s future.
In June 1, 2019, LINK main net was born. It becomes the fundaments of decentralized finance protocols (DeFi) which is so great to become real.
Chainlink Nodes (CN) is a network of nodes helps Chainlink operation. Chainlink Nodes must execute a program which can observe data activities in the real world and converts its gatherings to a readable information to smart contracts. Best to mention, these smart contracts are the ones implied in Ethereum network.
As it is possible to feed distorted or false data to smart contracts, Chainlink must become itself invulnerable to such threats. To do so, Chainlink becomes capable in game theory and incentives or disincentives. Chainlink gathers information from many random nodes. Moreover, by comparing them, it can decide which data is more valid.
Depends on the information given, LINK rewards. The more accurate the data is, the higher the reward gets. On the other hand, if LINK discovers a false data, the node giving that loses its trust and not being trustworthy means to get less tasks to complete.
To connect external data sources with its users, LINK has 3 levels of process. Oracle selection, data reporting and result aggregation.
In oracle selection step, LINK users must specific a set of data requirement which they desired. To do so LINK has a service-level agreement (SLA). SLA duty is to match users with specific oracles which can provide the desired data. Then, after SLA does its job, users must verify SLA’s job and finally deposit their LINK cryptocurrency and match the contracts.
In data reporting step, oracle combines the inputted data by SLA. After this process, the combined data go to Chainlink blockchain and do further processes.
In result aggregation step, oracles report their data results within an aggregation contract. Aggregation contract with the history of responses and the validity of each, contains a score calculated by weighting the data it received. This contract is reported back to the user.
Three types of smart contracts power the Chainlink blockchain, aggregation contracts, order-matching contract and reputation contract.
Aggregation contracts as mentioned before, after the valuation the data collected from oracles, gives the smart contract its result. This ends the smart contracts having the best possible and accurate data.
Order-matching contract duty is to connect a smart contract’s SLA with the most suitable bidding oracles.
Reputation contract as the third smart contract, checks the oracle tracks. With factors like the total number of completed requests, average response time and the amount of LINK cryptocurrency staked by oracle, reputation contract verifies oracle’s integrity.
Chianlink is also capable to connect with outer oracles. They too, are able to do the same process but outside the blockchain.
There are two components in the nodes, Chainlink core and Chianlink adapter.
First it is better to see Chainlink adapter work. Chainlink adapter is somehow a bridge that connects the external data to the node. Chainlink adapter reads and processes the data and stores it in the blockchain.
Now to introduce Chainlink core: Chainlink core duty is to observe every SLAa and stores their contents as well as setting assignments to the Chainlink adapter.
The value of LINK
Chianlink network operations is only and only can be activated by LINK and no other cryptocurrency. LINK’s value depends on the executions of smart contracts in Chainlink network. The more successful the executions get, the higher its value rises.
Oracles use LINK to pay smart contract creators. Once the services fail to be successful or once they completed the tasks, LINK is refunded. If an oracle cannot meet smart contract creators’ end of contract, smart contract creators keep LINK.
An oracle’s reputation depends on the value it’s holding which means LINK is what that gives oracles value.
LINK is a cryptocurrency that can’t be mined or staked, and the total amount of its tokens will always be 1 billion, the amount that first produced.