Chainlink 101
In our previous article The Oracle Problem & Decentralized Oracles, we discussed the oracle problem and its solution. Chainlink is one of them.
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~ Investopedia
So, summarizing, Chainlink is a decentralized blockchain network built on Ethereum. The network is intended to be used to facilitate the transfer of data from off-chain sources to on-chain smart contracts.
LINK:
LINK is Chainlink’s native token. The token is meant to help finance the growth of the project and is similar to Bitcoin (BTC) and Ethereum (ETH). The Chainlink network uses an ERC677 token that inherits functionality from the ERC20 token standard. Tokens act as data payloads, feeding the required data from off-chain sources to smart contracts, which then act accordingly in response to the data provided by the token. Chainlink, the trade value derived from these tokens, is used to pay node operators for retrieving data from smart contracts, and also for deposits placed by node operators as required by contract creators.
Architecture:
The Chainlink blockchain is powered by three types of smart contracts.
- Aggregating Contracts — Collect data from oracles and match the most accurate results with the smart contract that needs them.
- Order-Matching Contract — Matches a smart contract’s service level agreement (SLA) with the best bidding oracles.
- Reputation Contract — Verifies an oracle’s integrity by checking its track record. This includes factors such as the total number of completed requests, average response time and the amount of LINK cryptocurrency the oracle has staked.
How does it work?
When a smart contract user needs to connect to a real-world data source, they put out a service level agreement (SLA) request through the Chainlink protocol.
Chainlink then uses the information in the request to select oracles (order-matching) to provide the needed data.
Oracles process the real-world data and report it on the blockchain, a process by which an internal system validates the sources for accuracy. This last step works via the aggregating contract where the most accurate result from the oracles is input on-chain.
Those wishing to access the real-world data pay a small fee, which is deposited in the native LINK token and goes towards incentivising the node.
