Chainlink (LINK) 101 - Everything You Need To Know
Chainlink is a digital infrastructure, also called a decentralised oracle network, that links the blockchain ecosystem to the real world by integrating different data types. Unlike regular blockchain platforms, Chainlink makes use of multiple points of data input in a way that makes it impossibly difficult for smart contracts to be tampered from a single point of failure.
Since its inception, Chainlink has an ROI of over 10,000%, so this piece, we will look at how it’s digital infrastructure and unique use case make it a project to watch for further growth.
What Is Chainlink and Why Was LINK Created?
Chainlink came about because of a gap in the interaction between blockchain technology and legacy technology. As a mainstream application, blockchain is about a decade old, and its optimal use has been hampered by inadequacies, such as the inability of blockchain technologies to leverage data from the real world.
With their eyes firmly focused on this problem, Sergey Nazarov and Steve Ellis, a Chainlink co-founder, created Chainlink in 2017. Nazarov and Ellis’s goal for creating this digital infrastructure was to create a safe and secure link between the real world and the blockchain ecosystem. For instance, Chainlink would act as an ‘Oracle’, i.e. a platform that plugs the gap between smart contracts from the blockchain end and applications in the real world.
Because the Ethereum blockchain network is the originator of smart contracts, oracle networks such as Chainlink were connected to the network. An example of its usefulness is when a smart contract from Ethereum wishes to access external data. The nodes in Chainlink pick this request up and feed the appropriate information through.
Through an initial coin offering (ICO) in September 2017, the founders raised $32 million after which they supplied 1 billion LINK coins. LINK is a token that facilitates transactions within the Chainlink ecosystem. For example, when a node provider in the Chainlink ecosystem executes a smart contract, they are rewarded in LINK.
Because it is not like Ethereum or Bitcoin, LINK tokens are built using the Ethereum architecture, specifically ERC-20 and ERC-223 tokens. During the September 2017 ICO, 35% of the tokens were sold to the public, while 30% remained in the ecosystem to facilitate transactions. At the time of writing, one LINK token fetches $10.24.
Compared to fiat currencies, LINK tokens offer a flexibility that is unachievable by government-controlled currencies. For example, LINK tokens facilitate transactions in a trustless environment, unlike fiat currencies that require intermediaries like banks to enforce trust. In addition, the hard cap of LINK to 1 billion tokens protects holders against the ills of inflation. This is an assurance that fiat currencies cannot give.
How Does Chainlink Work?
Remember we defined Chainlink as a digital infrastructure that sits in between blockchain smart contracts and off-blockchain data sources. The infrastructure itself is a network of nodes where each node represents a peer within the ecosystem.
The difference between Chainlink and traditional blockchain networks is that most blockchains have a single point of failure. Although blockchains promise a decentralised environment in which peers interact in a fast and less costly manner, developers of the ecosystem still have some resemblance of central control.
In contrast, Chainlink relies on the various node operators to act as points of failure, which makes the network truly decentralised. Furthermore, each node has a reputation to maintain. Nodes that deliver accurate information quickly get rewarded with larger contracts, which means they end up owning more LINK tokens. On the contrary, delivery of poor results while servicing smart contracts by nodes leads to deduction of tokens.
Chainlink coordinates tasks among oracles in the network and also communicates with other blockchains. Consider an oracle that makes a data request on behalf of a smart contract. This task is assigned to a node and if the request is serviced successfully, the node earns LINK tokens. On their part, smart contracts spend LINK tokens to place bids.
At the core of this network is a piece of software called Chainlink Core. After the nodes have received a requesting contract, the Chainlink Core software translates the requests so that off-blockchain applications can understand the information. External APIs then route the translated request to the data source, and after the data is collected, the APIs feed the data into Chainlink Core for translation into on-blockchain language.
Key 3 Selling Points of Chainlink (LINK)
No single point of failure
Although blockchain technology promises decentralised interactions, there is a still centralised management of the platforms, especially private networks. Because of the reliance on a central mechanism to provide trust, there exists a central point of weakness that bad actors can exploit. Contrarily, Chainlink comprises a network of oracles, which means if one oracle goes down, others will be available to pick up the slack and keep the ecosystem operating.
Better security for transactions
Smart contracts are the genius of blockchain technology. Chainlink takes this concept a notch higher by introducing more robust security features. The reputation system that Chainlink uses to reward nodes provides a great incentive for the best results in terms of security and accuracy of information. The desire to tamper with the platform’s security by nodes is therefore quite expensive.
It mainstreams blockchain technology
The biggest drawback of blockchain is that the technology is still new and hence incompatible with many real life applications. Chainlink solves this problem by translating requests from on-blockchain languages to off-blockchain languages, which makes it easier for information to flow between the real world and blockchain ecosystems much faster and effectively. This could have a profound effect on how many legacy businesses interact with blockchain in the coming years.
Is Chainlink Worth the Investment?
Cryptocurrencies like LINK have two major strengths that make them an invaluable future-proof asset. In the first place, LINK has an intrinsic value that is pegged on the performance of the Chainlink platform. The world is slowly moving from legacy systems to trustless ecosystems like Ethereum and Bitcoin because of faster transaction speeds and better security. This means demand for blockchain-based tokens will likely go up in future.
To appreciate the profit potential of cryptocurrency, one only needs to look at the performance of the digital currencies since their inception to date. LINK, for instance, made incredible progress from its launch in September 2017 where its price was just $0.19. By August 2020, one LINK token fetched $19.59, implying growth of 10,024% in a space of three years!
If it gets more traction in future, one can only imagine what the value of one LINK token would be. There is a reason to pay higher attention to this space because the world is increasingly accepting blockchain. Whether or not Chainlink is worth the investment, one needs to look at what the ecosystem has achieved so far and then extrapolate this performance five years or more into the future.
Frequently Asked Questions
Yes. It is a legitimate project that aims to mainstream blockchain technology by filling the compatibility gap that exists.
Yes. LINK tokens facilitate transactions over the Chainlink network. Because the network’s use cases have the potential to revolutionise entire industries, such as finance, there is no doubt that LINK has a huge role to play in future.
Yes. Many reputable cryptocurrency exchanges such as Coinbase support LINK, meaning you can buy or sell the token with ease. You can also exchange the token for other digital currencies such as Bitcoin (BTC) and Ether (ETH).
No. LINK is one of the few tokens that are backed by robust projects whose long-term viability is strong. For this reason, LINK has avoided the crazy price gyrations that have characterised other cryptocurrencies.
Yes. LINK offers an income-generating opportunity just like other cryptocurrencies. However, one must be ready to conduct thorough research to ensure that only the right investment decisions are made.
LINK, like all cryptocurrencies, has a certain degree of risk involved. That is why good investors prepare by doing research and investing only an amount they can avoid to lose.
Yes. LINK is a serious competitor of original digital currencies such as BTC and Ripple (XRP) in the sector of payments. This is because it offers real value and it protects users against inflation.