Chainlink (LINK) explained

In Guides

Chainlink is a decentralized blockchain platform that enables smart contracts to realize their full potential.

Smart contracts can replace the need for both traditional legal agreements and centrally automated digital agreements. But since most contract platforms are isolated on individual blockchains, they can’t connect with external data feeds. They only work with the data contained within their network. 

As a result, smart contracts can't access real-world data such as data feeds, APIs, or banking systems. This problem is traditionally addressed using external data providers called Oracles that find, verify, and submit real-world information to blockchain-based smart contracts.

However, many existing Oracles are centralized services that make smart contracts no more secure than traditional centrally run digital agreements. That is where Chainlink can come in handy.

What is Chainlink

Chainlink is a decentralized oracle network that connects blockchains to real-world datasets such as events, data feeds, and payment methods that aren’t native to the blockchain. Meaning, information that's not native to the blockchain can be communicated to the blockchain via a decentralized oracle. 

Chainlink can bridge the gap between traditional data and the future of blockchain technology. It enables smart contracts to interface with real-world information, providing them with secure access to key data resources. This way, Chainlink offers reliable, tamper-proof inputs and outputs on any blockchain. 

Chainlink protocol also has mechanisms to ensure the accuracy and trustworthiness of the data. 

How it works

Since Chainlink essentially aims to bridge the gap between off-chain and on-chain resources, there are two significant factors that we must consider:

  • Off-chain infrastructure
  • On-chain infrastructure

Off-chain resources are oracle nodes that exist off the Chainlink network and are connected to the external blockchain. Most of the work performed by the Off-chain Oracle is done through the collection of the data requested by the user. Requested data passes through ‘Chainlink Core’ - a software that establishes a connection between the Off-chain data and the Chainlink network. Chainlink Core then retrieves the process data and delivers it to the On-chain Oracle. On-chain Oracles consider user requests for Off-chain data submitted to the blockchain and process them. The requests are finally routed to the appropriate smart contract.

LINK tokens

Chainlink created the LINK token to pay node operators within its system. The value and demand for LINK tokens are derived from the number of node operators available to provide off-chain services to Chainlink. As more LINK tokens are used as the Chainlink system’s currency, the more valuable the token should become.

Chainlink use cases

Chainlink can be used in so many industries. For example, securities requiring market data or insurance companies and supply chain companies requiring proof of events and timestamps. Following are some practical examples where Chainlink can come in handy:

  • A decentralized oracle solution can retrieve weather data to help calculate insurance premiums.
  • Location data to use in supply chain tracking.
  • Retail or bank payment information to trigger a smart contract.

Conclusion

Chainlink’s technology has proven to be one of the most important pillars of the DeFi and broader crypto ecosystem. 

To sum up, Chainlink can be used for anything that would benefit from the transparency, efficiency, and security of blockchain-based smart contracts. It ensures data is delivered through an open network of nodes where anyone can run their node, participate in Chainlink staking, and provide data to smart contracts.

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