Chainlink: Blockchain Oracles for Hybrid Smart Contracts

The cryptocurrency industry faces certain pain points that some interesting blockchain projects are trying to solve. Bringing interoperability to the world of blockchains is ChainLink’s project goal.

Bitcoin, Ethereum, Ripple, and others have existed as prominent blockchain networks in isolation to date. To connect all these blockchains, previously there was no way, not even a solution to connect them to real-world data that exists outside of the blockchain. You can discover more on blockchain by reading our latest publishing Blockchain – The Beast Has Awaken To Revolutionize The World Unpredictably

Through the established interoperability users and developers get access to various features of different blockchains. It is securely done in such a way that the integrity of both networks remains intact.

Blockchains were first introduced to the world by Bitcoin establishing the idea of decentralization mainstream. Using smart contracts, Ethereum then represented and unleash the true power of the blockchain mechanism.

The next step in the blockchain revolution is heralded by ChainLink that emerges to solve the issue and help different chains interact with each other even with external data sources.

Different blockchains do not allow free interaction between each other and have different consensus mechanisms. Using a secure Oracle network to create a fully decentralized solution ChainLink comes as a messiah and solves this problem.

Enabling tamperproof and quality smart contracts helps in limiting trust in a single party. Within this publishing, we will take a close look at ChainLink, LINK its native asset, and how it brings a more sustainable blockchain environment.

What is ChainLink?

ChainLink is the first of its kind, a truly unique blockchain project having the correct reason to carry this title. Currently, based on Ethereum, the decentralized oracle service brings the power of developing blockchain solutions for traditional businesses as well as enterprises.

ChainLink, as a truly unique blockchain project on their website, describes itself as:

“The ChainLink network provides reliable tamper-proof inputs and outputs for complex smart contracts on any blockchain.”

What factors make ChainLink unique. dedicated entirely to making smart contracts it is a concept focused more on the outside world. Ethereum first introduced the smart contract concept, however, their smart contracts can only manage data on the blockchain.

The bridge to real-world businesses is missing. Decentralizing the internet to create a link between blockchain and real-world applications is what ChainLink aims to respond to.

The real-life savior is the oracles in the network that serve smart contracts users to utilize and retrieve data from off-chain APIs, data pools, and other resources. These data are eventually integrated into the blockchain. In essence, APIs are used to take data from external applications and put it into the blockchain network.

Now, PayPal can be connected with the Ethereum blockchain, and additionally help users in sending payments directly from their smart contracts to their bank accounts.

In the process of connecting the blockchain ecosystem to external applications, on one end, the connection is to the blockchain, and on the other, it is integrated with an API. In this way, Chainlink makes interoperability and uniqueness possible. Limiting trust in a single party and working seamlessly in a decentralized infrastructure is basically possible because it is built on oracles that help

Two processes are driving the core functions of ChainLink and all depend on– On-chain and off-chain processes. “Externally aware” smart contracts in ChainLink allow users to carry a component that helps them integrate with non-blockchain applications as well. An Oracle record is generated by the on-chain infrastructure that helps also in oracle selection.

Once completed, an off-chain execution of the agreement is performed, and then it is getting reported back to the on-chain infrastructure. Equipped with subtask schemas and external adaptors, the off-chain architecture is along with the ChainLink Core.

Updates to all components of the infrastructure are possible, even though it currently works on Ethereum. Eventually, it is aimed to be updated to allow cross-chain transactions as well.

How Do the on-chain and off-chain work?

Developed on the Ethereum blockchain, the on-chain architecture of ChainLink uses the smart contracts method where they deal with the majority of the work, and data is retrieved within the node. The queries that nodes need to carry out are supplied by the smart contract.

Three unique components or contracts can be distinguished:

  1. A reputation contract that keeps track of oracle metrics.
  2. The order matching contract is based on the SLA and the parameters set by the creator of a smart contract and it serves to take bids from the individual nodes.
  3. The contract aggregates the data, i.e. collects answers by the nodes and provides a final result to the user’s query, and also supplies metrics to the reputation contract.

Hence, on-chain aggregation is separated into three steps–

  1. Oracle selection,
  2. Data reporting,
  3. Result aggregation.

The end-user or the smart contract creator controls the Oracle selection and specifies the criteria needed by the contract. It is necessary to include and know the type of information the contract should contain, the collection and reputation of nodes used in the assignment, etc.

To make the oracle selection easier listing services are provided to users, which work off-chain but it is projected to eventually be added on-chain. Using an order-matching contract nodes can be determined automatically on their suitability for the assignment.

To decide if nodes will automatically bid on the assignment or not nodes must be precisely preconfigured.

Bidding by paying the penalty will happen once the criteria of the node are matched with the contract. If the node does not return acceptable data this amount could be lost. The assignment will select the nodes and the ones which are not selected get to withdraw their penalty.

Nodes will carry out the assignment as determined by the SLA in the second step of data reporting. The API endpoints are the key point that connects and processes data through external adapters, sign responses digitally, and then return the answers on-chain.

The aggregating contract gets results from nodes in the final step of result aggregation. Next, it calculates an answer to the smart contract creator’s query. All responded inputs from all oracles will be collected and used to signal back to the reputation contract of each node’s time and validity. The contract creator can also configure the aggregating contract to omit certain answers.

The most interesting and unique thing about this blockchain solution is the off-chain architecture of ChainLink. Connecting all the nodes, the ChainLink network is part of the off-chain architecture. With the inclusion of the APIs, each of the nodes is connected to off-chain reserves to gather responses for every contract.

To help them in extending their connections to 3rd party API endpoints they may also have external adapters.

ChainLink core software translates all off-chain data in such a way that it can be read on-chain. This software also processes the sub-tasks of the assignments. An external adapter is an important component of this architecture is.

Third-party API endpoints can be accessed through these adapters and be used to help bridge the gap between blockchain and real-world applications. ChainLink’s schema format is required for all adapters.

Chainlink (LINK2)

Let’s look first at what smart contracts are and what is the purpose of an oracle before we dive into the ChainLink smart contracts.

Providing trustless execution on the blockchain a smart contract is a program that contains code. Removing intermediaries and transaction friction is what these contracts help in.

Retrieving and verifying data originating outside of a blockchain is what Oracles are used for. This solution is not a novelty, however, its penetration into the blockchain industry is making it a more popular topic in space.

The working of oracles is inculcated by ChainLink’s smart contracts that make unique symbiosis. Through this symbiosis, it is able to provide a decentralized oracle feed that is aggregated to meet the conditions of the smart contract off-chain and then converted into on-chain data.

Several components or processes are regulating the smart contracts’ framework. These are executed both on-chain and off-chain to ensure trustless third-party external data can be added to a smart contract.

Real-world solutions and their blockchain counterparts now have bridged their gaps through this incentive-driven system.

Oracles’ Definition and Purpose

Retrieving and verification of external data on blockchain networks and smart contracts is the Oracles’ purpose. They are programs that use market data feeds and web APIs to fulfill this purpose. An oracle can accomplish tasks like getting price data from the NYSE, or payment information from PayPal to a blockchain network.

A data source is queried for specific information, utilizing the power of oracles, and then it is connected to a blockchain. Flowing in from the data feed smart contracts can be created to work on specific information.

Lottery users, for instance, can generate a smart contract and the oracle can be used to generate a random lottery number from an external source.

Another example is people dependant on interpreters i.e. when two people from different countries, speaking entirely different languages enter into a conversation. (possibly political figures who tour other countries with personal interpreters by their side). Bridging the language gap between the two people and helping them understand each other is the job of these interpreters.

In this analogy blockchains and other existing platforms would be the politicians and Oracles the interpreters. Queries from blockchains are gathered by oracles, inquire on the external platform, and then they return the response.

Real-world application of blockchain technology is still in its infancy and may need to connect with existing technologies and platforms to mature and gain mainstream adoption however Oracles are very useful here and come as a messiah

ChainLink is a decentralized network. If you are interested you can run an oracle and participate in the network. Also, a Robust reputation system is implemented in ChainLink and this allows every Oracle to be awarded an on-chain identity and a reputation that helps in defining its reliability.

Even LINK tokens have to be staked by the nodes in the network and this could be forfeited as a penalty for providing bad data. With this unique approach, the network is freely available to all and discourages bad data while maintaining a completely decentralized architecture.

When new blockchain systems gain support on top of Ethereum, the network will be enriched further, creating and establishing decentralized interoperability solutions.

The Architecture of ChainLink’s network

Composed of ChainLink nodes, Chainlink is a decentralized network. The purpose of the nodes is to sell the use of specific data feeds, off-chain payments, and APIs directly to the smart contract.

On-chain and off-chain are the two main components of the network, which interact with each other symbiotically to execute contracts.

Smart contracts have an on-chain origin. However, all their external data is verified and collected off-chain which is then sent back on-chain. If the nodes provide bad data they have to stake LINK tokens which could be forfeited. And finally, in order to index their reliability to the users, Oracles also have reputation systems and unique identities.

When better technologies become available different components in the network can be changed over time because the network is built to be modular and upgradeable which is an amazing advantage.

The network is free to join for any API provider, individual developer, or payments or e-signature provider. By connecting their API to ChainLink users can become ChainLink Node Operators.

Fully connected Smart Contract Securities

Being the native token of the ChainLink network the LINK token is an ERC20 token, which means it has been built on the Ethereum platform.

The developers describe LINK as :

“an ERC20 token, with the additional ERC223 “transfer and call” functionality of transfer (address, unit 256, bytes), allowing tokens to be received and processed by contracts within a single transaction.”

Chainlink Developers,

Node operators on the network are getting paid with the token. The number of operators that work on the off-chain architecture of the network dictates the value and the demand for these tokens.

The token value is also derived from the use cases of the network- the more use cases the ChainLink platform can be put to, the more valuable the LINK token will be.

Used to incentivize the ecosystem the LINK token is native to the ChainLink network. Ethereum ERC20 standards are used for its structure.

Apart from being a payment currency for the Node Operators and a possible asset for buyers on different exchanges, currently, the LINK token has no other use cases. The adoption of the ChainLink network determines the value and utility of the token being entirely dependant on how many people will use it.

Any wallet that supports Ethereum, will be compatible, as LINK is an ERC20 token. For holding these tokens MyEtherWallet is one example of a wallet that can be used. The Ledger Nano S hardware wallet is an excellent utility for those looking to store more securely for example.

MyEtherWallet

MetaMask is a browser wallet that also supports ERC20 tokens, making them compatible with LINK. What is even more compatible here is that users can also use wallets provided by their respective exchanges where they buy and sell these tokens.

A hardware wallet is the most secure solution for storing tokens where possible.

LINK total supply

Limited to 1 billion, the total supply of LINK tokens means that it is not possible to create a new LINK token beyond this point, creating some scarcity and adding value to the token as time progresses.

To ensure continued development and payment to its staff the company has kept 30 percent of the token in total.

The ICO has dedicated 35 percent of the tokens. Node Operator payments are the other part of the pie where the remaining 35 percent of tokens i.e., 350 million tokens are available, aimed for incentivizing the network’s usage.

What are ChainLink’s use cases?

From fetching weather data to ensuring that payments processing networks help in executing smart contracts ChainLink can be put to as many real-world use cases as one can imagine. Using any external data and converting it into a blockchain-suitable response is what the network is capable of. This faces and deals with the cross platforms issues and compatibility.

As defined in its whitepaper, ChainLink’s value becomes more pronounced in three fields.

Securities smart contracts– Based on interest rate derivatives ChainLink can be used effectively for bonds and smart contracts. The whole circuit to be closed requires APIs to report on market prices and more because they are dependant on data available on different financial websites.

Insurance smart contracts– in case of an insurable event data from external sources can be used. To define insurable events and if payments need to be made for their data feeds from IoT devices could be used.

Trade finance smart contracts– confirmation for the fulfillment of contractual obligations is what these contracts could be used for. To ensure that all conditions are being met the contracts could be fed data via GPS or the ERP systems of supply chains.

In the proceedings of this publishing, we will discover more about ChainLink, its creators,  the project history, and its prospects in general. So buckle up to get the front row seat of the establishment of ChainLink, the company and people behind the project, and more.

Our visitors and readers will get familiar with Ari Juels, Sergey Nazarov, Steve Ellis, and the company SmartContract. Their approach uses digital technologies to make logic-based contractual agreements and went on to partner with the SWIFT banking system.

Established in 2014, the roots of ChainLink lay in a startup called SmartContract. To make contractual agreements that can be used by all participants in the industry- regardless of their skill level and expertise the company aimed to harness technology, especially smart contracts that will allow all of these services.

The San Francisco-based investment group Data Collective supported and backed the Chainlink efforts and SmartContract was selected as a “2017 Blockchain Applications Cool Vendor” by Gartner.

The co-founder Sergey Nazarov which is also CEO of the company has worked in the blockchain space before. As the founder of Secure Asset Exchange, a ShapeShift like cryptocurrency exchange and CryptoMail the decentralized email service also founded by him gives the necessary knowledge and experience to think outside of the box.

The co-founder and CTO of the company Steve Ellis has also previous experience in the domain working on the Secure Asset Exchange platform. As a software engineer in Pivotal Labs has allowed him to acquire significant experience before he made his debut in the blockchain industry.

Chainlink Founders
Chainlink Founders

The third and maybe most important person on the team is Ari Juels. Nazarov and Ellis along with Ari wrote the whitepaper of ChainLink. As a computer science professor at Cornell Tech and the director of IC3 he is also an advisor to ChainLink.

At the University of Illinois, Andrew Miller has worked as an associate professor of computer science and he is also an advisor to ChainLink and adviser to Tezos and Zcash.

Hudson Jameson is another strong advisor on the team who is also one of the prominent Ethereum developers.

The Whitepaper

Steve Ellis, Ari Juels, and Sergey Nazarov wrote The Whitepaper for ChainLink. On September 4, 2017, ChainLink whitepaper v1.0 was released.

The whitepaper contains details of

– the project’s infrastructure as a whole,  

– what problems it can solve,

– the architecture of the additional on-chain and off-chain systems,

– the use of oracles,

– reputation management

– penalty stakes for nodes,

– and the LINK token utility.

ChainLink’s vision for creating ‘smarter’ smart contracts that connect external APIs to blockchains is also detailed within the whitepaper.

In September 2017, ChainLink launched the ICO of the LINK token. During the ChainLink ICO, 35 percent of 1 billion tokens became available to users.

Ethereum was accepted as payment with the ERC20 token’s ICO. 1 LINK had an initial price of 0.11 USD or 0.00038462 ETH. The ICO had a maximum personal cap of 7 ETH. The project reached its aim, which was to raise $32 million from the sale.

The SWIFT banking system was the most interesting partnership that we have seen for ChainLink. Using ChainLink, SmartContract developed a proof of concept for SWIFT. Automate bond coupon payments became a reality through the ChainLink solutions and their concept established these payments into practice.

In October 2017, ChainLink demonstrated the PoC at the SWIFT Sibos Conference, where it pulled off-chain interest rate data from five different banks – Fidelity, BNP Paribas, Barclays, Santander, and Societe Generale. To make the payment, it eventually generated an ISO20022 SWIFT message.

In 2016,  it was also the winner of the Innotribe Industry Challenge. A segment of SWIFT is  Innotribe, notably focused on innovation.

In order to create a smarter, quicker, and easier smart contract development process, Chainlink has also partnered with Zeppelin OS, which helped to establish these endeavors.

Another well-known ChainLink partner is IC3’s Town Crier, a patent-pending system that leveraged trusted hardware to verify.

A data storage system using blockchain and smart contracts was also necessary in the equation and Factom took the place as another partner to cover this task.

Another partner that is also working with ChainLink is The Request Network, which creates an open-source, standardized, and decentralized PayPal-like currency agnostic network is to look into a possible fiat integration.

Chainlink can be bought on Binance as an excellent option that accounts for a huge percentage of the total volume of LINK traded.

Should I Buy ChainLink?

ChainLink is a highly volatile asset, just like other cryptocurrencies, and users who are not completely aware of the intricacies of crypto investing should consider in detail if they decide to invest in LINK.

Having this in mind, it is important to note that LINK is a very strong token and its native blockchain is solving one of the biggest pain points in the blockchain industry. The team has strong knowledge, determination, and experience and the token has fared very well in the market compared to other cryptocurrencies since its inception.

Conclusion

Becoming the next Bitcoin or Ethereum is difficult for many projects in the blockchain space however most new coins make noise in this way during their hypes and promotions. A real blockchain problem that users face ChainLink faces with a solution with huge potential.

It is well worth keeping an eye on this project, given the strength of the company’s founders and advisors and the robustness of the solutions that it offers.

Since its inception, Chainlink has done extremely well and with broader adoption, it may excel further in the future.

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