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What is Chainlink: An Introduction To Chainlink(Link)

BitForex Editor
Nov 25, 2020


Smart contracts were a groundbreaking technology developed under the blockchain network. Since the rise of crypto tokens, they have been used to achieve end-to-end encryption between users without the aid of a third party or middleman.

Chainlink is one platform that has benefited blockchain technology, functioning as a bridge between external data sources, and blockchain smart contracts. Want to find out what chainlink is? How it works and its features? If so, read on for further details.

First of all, to understand what Chainlink is, we need to know when Chainlink was founded and for what purpose. The Chainlink network was created in 2017 by company SmartContract which had been in operation for over 3 years before then. The company Smart contract was founded by Sergey Nazarov and Steve Ellis as a means of bringing external data into the blockchain network.

Thus, Chainlink was launched to make this happen by enabling the connection of smart contracts to data feeds from any data source or API, a game-changer in the blockchain industry. After accumulating $32 million via an ICO(Initial Coin Offering), the Chainlink main net went live in 2019.

Chainlink network of decentralized oracles was created by SmartContract to solve the issues they had about the dependence its Oracle solution had on centralized oracles and has since then become an integral part of the Oracle space.

Chainlink is a decentralized oracle network built on the Etherium network which provides real-world data to smart contracts on the blockchain. Its decentralized network of nodes provides data and information from off-blockchain sources to on-blockchain smart contracts with the help of oracles.

Along with hardware possessing optimum security, the process eliminates the dependence that may occur if only a single centralized source is used. Chainlink created a vital piece of smart contract infrastructure with its "Blockchain Middleware" letting its Oracles provide essential information like price feeds, links to traditional payment systems, and event results without sacrificing security or decentralization.

What Are Oracles?

Oracles make use of smart contracts to bring real-world data like the weather forecast, football match result, price feed, etc. into the blockchain. They serve as intermediaries between several parties during the transfer of data off and on the blockchain.

They verify and transfer real-world data in and out of varying blockchain ecosystems, when used along with smart contracts, they verify that the data provided by both parties is reliable and ensure that the conditions of the smart contract have been met.

 The chainlink network of decentralized node operators requires a consensus on data verified and transferred in and out of the blockchain, flagging foul play, penalizing perpetrators if the data offered does not reach a consensus with the rest of the network. This is the main attribute of the security of the Chainlink network.

Smart-contract-enabled blockchain can use the Chainlink Requesting Contract to request data. This "event" is then registered on the chainlink network and then a Chainlink Service Level Agreement Contract (SLA) to allow users access to off-chain data. There are three sub-contracts contained in the SLA including;

• Chainlink Order-Matching Contract: This contract sends data requests to nodes for use in smart contracts. It also allocates the appropriate nodes for varying types of tasks.

• Chainlink Reputation Contract: It tracks the authenticity of data and performance of a node, searching for suspicious nodes or actors.

• Chainlink Aggregating Contract: Validates, collates, and reconciles data requests, transferring data for communication using the Chainlink Core software between parties.

The Chainlink network goes through a whole host of processes to facilitate communication between its users and external sources, but in its entirety, the procedure can be grouped into three execution processes namely;

1. Selection of Oracle

Chainlink users firstly, draft an SLA that specifies a set of desired data requirements. This SLA is then utilized by the software to match the users with the appropriate oracles that can provide the data. As soon as parameters are set, the user deposits their cryptocurrency (LINK) and submits the SLA in an Order-Matching contract that accepts Oracle's bids.

2. Data Reporting

This step involves the oracle connecting with external sources and obtaining the real-world data that was requested by the user in the SLA. This data is then processed and sent back by Oracle to running contracts on the Chainlink Blockchain.

3. Result Aggregation

This simply involves tallying the results of the collected data and returning them to an Aggregation contract. The contract then takes the responses, assesses each their validity, and produces a weighted score using the sum of all data received.

LINK built using the Etherium ERC-20 standard is the native token of the Chainlink platform. LINK is used to pay Node operators to secure the network by staking the token. This incentivize integrity and honesty among nodes as foul play is penalized. The token soared in value from less than $2 to almost $20 between March and August.

Chainlink And DeFi

Since the rise in popularity of DeFi, High-quality Oracle services have become in-demand because they all require smart contracts and external data to function properly. Centralized Oracle services leave DeFi platforms open to attacks like a flash loan through the manipulation of the oracle.

Several projects like Ave, Synthetix depending on Chainlink for protection, and although it is a safe avenue if all platforms depend on a single oracle service there is the risk of total breakdown if anything should happen to Chainlink. As a decentralized service, Chainlink suffered a spam attack during September 2020 losing up to 700 ETH from node operator wallets. Although it was quickly curbed, the attack proved no system is 100% secure.


Chainlink's technology has quickly become a vital pillar of blockchain. It has made a name for itself by tamper-proof and reliable data for complex smart contracts on any blockchain platform. With innovative ideas like "reputation score" to oracles and a LINK reward for node performance, the Chainlink team have managed to launch one of the few projects that have delivered its vision, the future looks very promising.

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