Chainlink review: A comprehensive guide by Digimagg

Our Verdict

Our Verdict

Chainlink is a decentralized oracle network built on the Ethereum blockchain, designed to bridge the gap between blockchain-based smart contracts and external data sources, APIs, and off-chain systems. It was founded in 2017 by Sergey Nazarov and Steve Ellis and launched its mainnet in 2019. Chainlink's native cryptocurrency, LINK, is used to pay for services within the network and incentivize node operators to provide accurate data.

Pros

• Decentralization
• Interoperability
• Reliability and security
• Wide range of use cases

Cons

• Centralization risks
• Integration complexity

4.7

Our ratings take into account a product's cost, features, ease of use, customer service and other category-specific attributes. All ratings are determined solely by our editorial team.

Price

$18.50

Providing decentralized oracle services

Yes

Ensuring data integrity and reliability

Chainlink aims to ensure the integrity

What is Chainlink?

Chainlink, a decentralized platform initiated on the Ethereum blockchain, aims to bridge blockchains with real-world data using oracles. This enables cryptocurrencies to have practical applications beyond the blockchain. Founded by Sergey Nazarov and Steve Ellis in 2017, the platform gained momentum by selling 350 million LINK tokens during an Initial Coin Offering (ICO), raising approximately $32 million. In 2018, it acquired Towncrier, a smart contract data feed, and in 2019, it was officially launched on the Ethereum mainnet.

How does it work?

To grasp the functioning of Chainlink, it's essential to comprehend two key concepts: smart contracts and oracles.

Smart contracts

These are software programs designed to execute specific actions when predefined conditions are met. While they are commonly associated with decentralized systems, they can also operate on centralized ledgers. The hallmark of smart contracts is their ability to function autonomously, requiring minimal supervision. Once the conditions are fulfilled, the smart contract automatically executes the programmed actions.

For instance, consider a smart contract governing limit orders on cryptocurrency exchanges. If you establish a limit order to sell two Bitcoins when the price of Bitcoin reaches $40,000, you're activating a smart contract and providing it with instructions. Upon reaching the specified price, the smart contract proceeds with the sale without any further intervention from you.

Oracles

Blockchain oracles serve as a bridge between on-chain data and off-chain sources, facilitating the integration of blockchains with external systems. If individual blockchains represent isolated computing environments, oracles act as the internet, linking these systems with each other and the broader world.

In the scenario of the limit order described earlier, on-chain oracles play a crucial role by providing the smart contract with real-time information when Bitcoin reaches the target price. Without them, the smart contract would lack the means to determine when its predefined condition is met.

Additionally, there are off-chain oracles, which source data from external systems not directly connected to the blockchain. For instance, consider a decentralized sports betting platform that requires accurate sports results to trigger predetermined smart contracts. Off-chain oracles fulfill this need by fetching data from external sources.

Chainlink operates by creating a series of smart contracts when a smart contract requests data from its protocol. The initial smart contract, called a Service Level Agreement (SLA) contract, is established to register the request. This SLA contract then generates three sub-contracts to execute its task.

The first sub-contract is the Chainlink reputation contract, which verifies the authenticity and reputation of the oracle providing the data. If the oracle passes this verification, it is approved; otherwise, it is rejected. The second sub-contract is the Chainlink order-matching contract, which pairs the initial SLA contract with suitable data providers to fulfill the request.

Finally, the Chainlink aggregating contract collects and analyzes data from the selected oracles, consolidating it into a concise and accurate report. Throughout this process, decentralization is maintained, ensuring transparency and reliability.

Practical applications

Cross-blockchain communication protocol

Thanks to Chainlink's oracles, numerous DeFi protocols can now exchange messages and interact across different blockchains, enabling cross-chain applications. This was demonstrated in an experiment involving SWIFT, a global financial messaging giant.

Verification of asset reserves

Chainlink enables smart contracts to validate the legitimacy of on-chain assets backed by off-chain reserves, including tokenized assets and fiat-backed stablecoins. CACHE Gold is an instance of a protocol leveraging Chainlink's oracles for Proof-of-Reserve.

Authentic random number generation

This feature is commonly employed by gaming and NFT-based protocols to establish a trustworthy model for generating random numbers. DeFi applications equipped with this capability offer enhanced functionalities and practical utilities. Ether Cards is a protocol utilizing Chainlink's VRF.

Decentralized market data feeds

This functionality empowers DeFi protocols to access precise and real-time financial market data for both crypto and traditional assets. It proves invaluable in various scenarios such as insurance, crypto lending, and real-world asset tokenization. Hedge is a protocol that relies on Chainlink's feeds for processing crypto loans.

Automated data integration

One of the fundamental utilities of Chainlink's oracles is to automate data provision for smart contracts, eliminating the need for manual input. This integration streamlines operations for protocols like RoboVault.

The Chainlink token

Originally an ERC-20 token, LINK is now supported on 15 other blockchains and boasts a maximum supply of one billion tokens. Currently ranked among the top 20 crypto assets by market capitalization, these tokens function as the ecosystem currency for compensating network operators within the oracle network.

With its widespread popularity in the crypto sphere, acquiring LINK is relatively straightforward. It's readily available on most centralized exchanges for conversion into fiat or other cryptocurrencies. Additionally, it can be directly purchased on many decentralized exchanges. However, it's essential to recognize that while LINK is integral to Chainlink, the ecosystem extends beyond the LINK token.

In conclusion, as the cryptocurrency market enters a bullish phase, LINK emerges as a token worth monitoring closely. It stands as one of the premier tokens facilitating practical connections between the crypto space and the broader world. Consequently, it's positioned for significant price appreciation in the near future, especially with the impending launch of Chainlink 2.0.

Nevertheless, it's crucial to acknowledge the inherent risks associated with crypto investing. While this shouldn't dissuade you from participating, it's essential to approach investment decisions cautiously and avoid investing more than you can afford to lose.