Chainlink

What is Chainlink (LINK)?

Chainlink is one of the most unique projects in blockchain, functioning not as a blockchain but as an abstraction layer. Using a decentralized network of oracles, Chainlink brings external data onto blockchains to facilitate smart contracts.

While Chainlink does have its own LINK token, the Chainlink Network itself is its key contribution to the industry. It has an open source community of node operators, data operators, and other participants, all of which contribute to Chainlink’s vision of feeding smart contracts with off-chain information.

When Was LINK Launched?

Chainlink was founded in 2017. In September of the same year, the LINK token was launched among the raft of Initial Coin Offerings, with an ICO price of $0.11. During the launch, 350 million LINK were sold out of the total and maximum supply of 1 billion.

As per the information issued during the ICO, a further 35% of the LINK supply went towards the incentivization of the system, including node operators, and the final 35% was given to the company to fund the network’s further development and operations.

The Chainlink Network itself was launched in 2019, and its trademark was registered in March 2019 as Smartcontract Chainlink Sezc, Ltd. in the Cayman Islands.

Who are the Founders of Chainlink?

Sergey Nazarov, the co-founder of CryptaMail, and Steve Ellis, the co-founder of the Secure Asset Exchange, joined forces to create SmartContract, a corporation focused on giving smart contracts access to external data and payment mechanisms.

During their work at SmartContract, Nazarov and Ellis co-authored the Chainlink whitepaper along with Cornell University professor Ari Juels. Juels’ contributions were seen as the Chainlink network got closer to launch, as he integrated projects he had worked on, including Town Crier and DECO.

How Does Chainlink Work?

Chainlink partners up with various data providers, purchasing that data and then sending it directly to various blockchains. Rather than just being an oracle, therefore, Chainlink is often referred to as an oracle aggregator.

This service is vital because blockchains tend to be self-contained systems that only have access to data provided to them. So, external data needs to be fed into them somehow, especially for more complex smart contracts to function.

This ability to feed data into the code of smart contracts allows for the infinite multiplication of smart contract utility. Rather than just performing on-chain functions, smart contracts can take advantage of this constant data feed to facilitate transactions that depend on off-chain factors.

The oracles within the network collect, query, validate, and deliver data to Chainlink. It then directs the input into smart contracts, enabling the enhanced functionality of an entire ecosystem of decentralized applications.

What Makes Chainlink Unique?

Given what it does for the blockchain industry, Chainlink is a true pioneer in its niche. Established as a trusted facilitator of off-chain data, Chainlink has a very strong reputation to fall back on alongside a huge network of partners.

Node operators, incentivized by LINK token rewards, take data requests from dApps deployed on blockchains and fetch that data from real-world data providers.

These requests for data are made via service level agreement (SLA) software that specifies exactly what is required.

For example, a DeFi dApp may require daily interest rate data or stock exchange trades. Chainlink then secures oracles that can accurately furnish this data.

Then, the dApp or blockchain operator submits the SLA and LINK tokens to pay the oracles when contract terms are satisfied.

Oracles then obtain the required data from external sources and route it through Chainlink, which then aggregates the data and analyzes the results. The most accurate answers are chosen and finally sent to the relevant smart contracts.

This movement of real-time data is crucial to the world of DeFi and smart contracts. That’s primarily because many of them hinge on Chainlink’s data, and nodes secure and validate a significant number of transactions.

How is the Chainlink Network Secured?

Chainlink is based on Ethereum’s ERC-20 standard, and the LINK token is in fact an ERC-677 token, which is ERC-20 with added functionality. This means that Ethereum plays a big role in the security of Chainlink.

That said, LINK itself implemented a proof-of-stake (PoS) consensus mechanism in early 2022. This puts it a step ahead of Ethereum, which, as of June 2022, still has its PoS mechanism in testnet.

Chainlink’s PoS consensus is similar to many in that validators are determined based on the number of LINK tokens they have staked.

However, this consensus doesn’t revolve around the production of blocks since Chainlink isn’t a blockchain. Rather, according to Sergey Nazarov, the founder of Chainlink, LINK PoS makes “consensus on hundreds of oracles about price data.”

What is the Use of Chainlink?

According to the Chainlink blog, there are several main use cases for Chainlink, although it can be applied in countless other areas.

One of the primary uses of Chainlink is in the area of DeFi. Decentralized applications built on blockchains that support smart contracts like Ethereum provide suites of financial services similar to traditional financial institutions.

Chainlink is often used by these dApps to price assets, access interest rates, verify collateralization, and more. This allows these DeFi platforms to perform many of the same functions as their traditional counterparts can.

Chainlink is also currently being used in the insurance field. The Arbol crop insurance market gets weather data from Chainlink, letting farmers worldwide obtain parametric crop insurance settled fairly over the internet.

Chainlink is also used in gaming and non-fungible tokens (NFTs) thanks to its randomness solution called VRF, which generates the randomness required by blockchain games. VRF delivers it to smart contracts in a manner that allows users to prove that it is fair and unbiased, and not manipulated in any way by the game, its developers, or external entities.

Who Controls Chainlink?

Chainlink is controlled by Smartcontract, a company founded by Sergey Nazarov and Peter Ellis. However, the company also prides itself on the luminary advisors it has on board to guide the Chainlink protocol forward.

Some of these advisors include Eric Schmidt, an ex-Google chairman and CEO, former LinkedIn CEO Jeff Weiner, and DocuSign co-founder Tom Gonser. Along with these advisors, Chainlink has over a thousand project integrations with oracle networks and access to over a billion data points.

How Much LINK Is In Circulation?

Chainlink’s initial coin offering saw LINK tokens being offered at a price of $0.11, with 350 million being sold. This represented 35% of the total fixed supply of 1 billion LINK.

A further 350 million tokens are earmarked towards node operators and their incentivization, while the final 300 million went to Smartcontract to fund the development of Chainlink.

As of June 2022, over 460 million LINK tokens are in circulation out of the maximum 1 billion LINK.

How Do You Buy LINK?

Given Chainlink’s reputation and its appreciation following the ICO, many exchanges have seen demand for LINK to be listed.

Many of the top exchanges do offer LINK trading, and as a token on Ethereum, it is also available on blockchain-based decentralized exchanges (DEX).

Is It Possible to Buy LINK Instantly?

LINK can be purchased instantly on a cryptocurrency exchange, although this normally doesn’t involve any settlement of funds. Rather, a user’s account simply reflects the result of trades, and LINK is only sent to the user upon transferring it to a private wallet.

On DEX platforms or in peer-to-peer trading, the speed of purchase depends on blockchain congestion. Ethereum takes a few minutes to settle under normal conditions, but can be slower or faster (and gas fees can vary) depending on how many people are using the network.

How Do You Store LINK?

Like most cryptocurrencies and Ethereum-based tokens, LINK is stored in a wallet. There are two main types of wallets that can be used to store LINK:

• Hot wallets. These are usually convenient and easy to use, taking the form of lite desktop clients or simple browser extensions.
• Cold wallets. These wallets stay completely offline, giving the holder protection against various types of attacks, including hacking.

Chainlink’s Energy Consumption

Chainlink’s chosen consensus mechanism is proof-of-stake, which is many times more energy efficient than proof-of-work. This is because validators do not rely on pure processing power but on security instead, based on the locking up of a stake of tokens with significant value.

However, this consensus applies to the Chainlink network and not the security of its token. This is secured by Ethereum, which remains a PoW blockchain.

Nonetheless, the upcoming Ethereum 2.0 merge will transition Ethereum into PoS as well, thereby dramatically reducing its power consumption.

Is Chainlink a Good Investment?

Since Chainlink’s ICO, it has seen immense price appreciation, from $0.11 to around $50 during the 2021 crypto bull market. This has made it an excellent investment for many, and its unique and fundamental utility makes LINK a preferred token for many.

However, out of the total supply of 1 billion LINK, less than half is in circulation at the time of writing. This suggests potential dilution in the future when those tokens hit the market.

Nevertheless, the fact that the supply is capped offers an element of scarcity, and many investors positively regard the introduction of staking in 2022.