Chainlink is a decentralized oracle service that feeds real-world, off-chain data into blockchains to help improve smart contract execution.
Examples of external data needed for smart contracts include market prices, timestamps for supply chain activities, weather data to calculate insurance premiums, game scores to settle bets, and proof of payments from traditional banks.
Projects that use Chainlink can outsource off-chain data that are tamper-proof, reliable, and agreed upon by a decentralized network of data providers.
How does Chainlink work?
A big challenge in DeFi has been figuring out how to communicate information to and from a blockchain.
Chainlink solves this problem with a network of oracles, known as “chainlinks” that provide real-world (or “off-chain”) data to smart contracts on the blockchain.
Chainlink users start by paying LINK tokens to execute a Request Contract on-chain. This contains the data needed, frequency, and maybe a preferred data provider.
The Request Contract also activates the Service Level Agreement (SLA) Contract containing three sub-contracts:
- The Reputation Contract evaluates an oracle provider’s track record, metrics, and other factors to determine which ones are unreliable and should be discarded.
- The Order-Matching Contract collects bids from endorsed oracle providers and selects ones that satisfy the parameters stated in the SLA Contract.
- The Aggregating Contract collects responses from selected oracle providers and computes for a final, unified answer to a query that will be directed back to the Request Contract. The actual computation for a final answer is done off-chain and verified on-chain to save on gas fees.
The final answer also factors in the oracles’ performance history. Oracles that have made reliable answers get higher scores and can charge more LINK for the data they provide.
Chainlink was only available on the Ethereum blockchain but it has now expanded to include smart contract-capable blockchains like Bitcoin and Solana.
Team background
Blockchain enthusiasts Sergey Nazarov and Steve Ellis co-founded blockchain startup SmartContract in 2014 to develop oracle networks that service smart contracts.
In 2017, they worked together with Cornell Tech professor Ari Juels to publish a whitepaper introducing Chainlink’s protocol and network.
Chainlink technology’s push to include hybrid smart contracts and a wider community is handled by a team of developers and researchers on Chainlink Labs, which is managed by Cayman Islands-based SmartContract.
What is the LINK token?
LINK is Chainlink’s native token and is used to pay for oracle services on the network by creating smart contracts that can interact with real-world information that exists off-blockchain.
LINK is an ERC-677 token, which is basically an ERC-20 token that can contain data that will trigger smart contracts.
LINK is mainly used for network activity. Users pay LINK to get data while node operators stake LINK to improve their odds of being selected and are paid in LINK.
Token holders can also lend LINK to earn yields and use it as collateral on lending platforms like Aave or Compound.
LINK is available on major crypto exchanges and can be stored in ERC-20 compatible wallets.
Token Metrics:
- Holder Addresses: 696,417 (updated Oct. 2022)
- Max supply: 1B LINK
- Circulating supply: 491M LINK
Major partners:
- SWIFT