What is Chainlink (LINK) ? How It Works? Complete Guides 2024

Chainlink is a cryptocurrency aiming to incentivize a global network of computers to provide reliable, real-world data to smart contracts running on top of blockchains. 

If you’re unfamiliar, smart contracts are agreements programmed to execute if and when certain conditions are met. To date, smart contracts have been used for everything from creating novel crypto-financial products to developing new crypto assets. 

However, an issue that has persisted is that most smart contracts need to rely on some kind of external data source to properly execute their terms. 

For example, smart contracts seeking to replicate bonds or insurance agreements may need access to APIs reporting on market prices or Internet of Things data. 

Chainlink was created to address this issue by incentivizing data providers (called “oracles”) to act as a bridge between blockchain smart contracts and external data sources. 

Every oracle within the Chainlink network is incentivized to provide accurate data since a reputation score is assigned to each. Further, when nodes follow the software’s rules and provide useful data, they are rewarded in Chainlink’s cryptocurrency, LINK. 

Arriving amid a crowded field of projects in 2017, the Chainlink team has so far been able to deliver on its vision, expanding efforts beyond Ethereum (ETH) amid a surge in market activity. 

As of 2020, is seeking to support all blockchain-based smart contract networks. 

Users seeking to stay connected on the current development status of Chainlink can follow its official project tracker for up-to-date details.

Understanding Chainlink

The Chainlink blockchain can support the secure sharing of inputs, outputs, and computations. Some features of Chainlink include:

• Supporting decentralized data feeds: Data from many sources can be securely collected and processed for hybrid smart contracts.
• Providing verifiable sources of randomness: Applications such as games that require cryptographically secured randomness can use Chainlink.
• Enabling automation: smart contracts can automate critical functions and event-driven tasks for enterprises.
• Supporting cross-blockchain interoperability: Chainlink can connect blockchain platforms to support the exchange of messages, tokens, and specific actions

is a blockchain-based decentralized oracle network that was launched in 2017. Oracles are networking tools that connect blockchains to external systems, thereby allowing smart contracts to execute based on inputs and outputs originating from the blockchain.

Though traditional oracles are centralized, decentralizes the process of moving data on and off blockchains through “hybrid smart contracts. LINK tokens are used to reward network operators for retrieving data from off-chain feeds, formatting data into accessible formats, and performing off-chain computations.

The Chainlink decentralized oracle network is a system of nodes that adhere to set protocols. Node operators are required to stake—lock a specific number of—their LINK tokens. Node operators set their own fees based on demand for the off-chain resource they provide.

Because allows blockchains to exchange data with off-chain systems in a decentralized and tamper-resistant way, the Chainlink oracle network has many use cases. has been used to fairly distribute non-fungible tokens (NFTs), gamify personal savings, and facilitate recalibrations of cryptocurrency token supplies, among other applications.

was created by Sergey Nazarov and Steve Ellis, who authored a 2017 white paper with Ari Juels.8 The network launched in 2019. LINK is an ERC-20 token, meaning that it is compatible with other currencies and smart contracts supported by the Ethereum platform.

How does Chainlink work?

To facilitate communication between its users and external data sources, divides its execution process into three distinct steps. 

1. Oracle Selection – First, Chainlink users draft a service-level agreement (SLA) that specifies a set of desired data requirements. The software then uses the SLA to match the user with oracles that can provide the data. Once the parameters are set, the user submits the SLA and deposits their LINK cryptocurrency in an Order-Matching contract, which accepts bids from oracles.
2. Data Reporting – This is where the oracles connect with external sources and obtain the real-world data requested in the SLA. The data is then processed by the oracles and sent back to contracts running on the Chainlink blockchain. 
3. Result Aggregation – The last step involves tallying the results of the data oracles collect and returning it to an Aggregation contract. The Aggregation contract takes the responses, assesses the validity of each and returns a weighted score, using the sum of all the data received, to the user.

How Does Chainlink Differ From Ethereum?

The Chainlink network is, in some ways, a complement to the Ethereum network and other blockchains. Chainlink can facilitate secure communications between Ethereum projects and various off-chain data. Because LINK token is built on the Ethereum platform, LINK is compliant with the Ethereum platform’s protocols.

Ethereum tokens can be used to spend on purchases, facilitate smart contracts, and pay validators for operating the Ethereum network. Chainlink tokens have only a single use case, which is to pay node operators in the network.

Goals of Chainlink

Chainlink aims to continue to grow by expanding its support for blockchain environments and facilitating new use cases for hybrid smart contracts. Because significant stores of data and records are not yet maintained within blockchains, Chainlink may have countless opportunities to connect blockchain networks with off-chain information.

In 2021, the Chainlink network secured more than $75 billion of value as it grew to include over 1,000 projects. Chainlink has a maximum supply of 1 billion tokens, of which about 557 million have been issued (as of December 2023).

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 amount of LINK cryptocurrency the oracle has staked. 

However, also interacts with oracles that do not operate on its blockchain, and that are independently responsible for collecting the real world data requested by the contracts. 

The nodes are made up of two components: 

• Chainlink Core – Core is responsible for reading newly filed SLAs and routing assignments to the Adapter.
• Chainlink Adapter – Acts as the bridge between the node and the external data. The adapter can read and process the data and write it to the blockchain.

What Can I Buy With LINK?

LINK cryptocurrency is used to incentivize =node operators rather than being designed for everyday purchases. These network participants, tasked with securely transferring data to and from blockchains, are paid in LINK.

Why Is Chainlink Popular?

The Chainlink decentralized oracle can connect many types of data with various blockchains, creating many potential applications for Chainlink. Chainlink could help to integrate blockchain technology with many industries and business functions.

popularity stems from its ability to address a critical challenge in the blockchain world: the blockchain oracle problem. Here’s a breakdown of why is a significant player:

Solving the Oracle Problem:

• Traditional blockchains are siloed systems, meaning they can’t access data from the outside world directly. This poses a problem for smart contracts that require real-world data to function properly.
• acts as an oracle network, providing a secure and reliable bridge between blockchains and external data sources. It retrieves data from the real world (off-chain) and feeds it on-chain to smart contracts.

Benefits of Chainlink Oracles:

• Enable Real-World Functionality: Smart contracts can leverage real-world data for various purposes, such as triggering payouts based on weather conditions or stock prices, or initiating actions based on real-world events.
• Enhanced Security: uses a decentralized network of oracles to gather data. This mitigates the risk of a single point of failure or data manipulation.
• Flexibility: supports various data types, including financial data, weather information, and API calls.

Chainlink’s Network Design:

• utilizes a decentralized network of oracle nodes. These nodes are run by independent operators who stake LINK tokens to ensure they provide accurate and reliable data.
• The network uses a reputation system to incentivize honest behavior from oracle nodes. Nodes with a good reputation have a higher chance of being selected to provide data for smart contracts.

LINK Token:

• LINK is the native token of the =network. It’s used for:
  • Paying oracle nodes for their data services
  • Staking to participate in the network and earn rewards

Impact and Adoption:

• has gained significant adoption in the DeFi space. Many DeFi protocols rely on Chainlink oracles for secure and reliable data feeds.
• Its ability to bridge the gap between blockchains and the real world has made Chainlink a crucial infrastructure layer for the blockchain ecosystem.

Criticisms:

• network can be complex, and some argue it adds centralization compared to purely on-chain solutions.
• The LINK token’s price can be volatile, impacting the overall cost of using Chainlink oracles.

Is Chainlink Made by Oracle?

Oracle Corp. (ORCL) is a computer technology company specializing in database management. Chainlink is not affiliated with Oracle Corp. =refers to itself as a decentralized oracle network, with the “oracle” being a broad-based group of intermediaries that connect blockchains with off-chain information systems.

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