A beginner's guide to Chainlink crypto (LINK), the oracle network for powering hybrid smart contracts.
Chainlink calls itself a decentralised blockchain oracle network.
Built on Ethereum, Chainlink is used to facilitate the transfer of tamper-proof data from off-chain sources to on-chain smart contracts.
In a world where the data found on blockchains can be isolated from the ‘real world’, Chainlink offers a valuable link.
Chainlink's decentralized oracle network provides reliable, tamper-proof inputs and outputs for complex smart contracts on any blockchain.
This Chainlink guide takes a deep dive into the most shilled coin on crypto Twitter.
Yep, the fact we’ve chosen Chainlink as our next featured crypto guide, shows that the Link Marines are certainly doing their job.
Introduction to Chainlink crypto (LINK)
Let’s introduce the LINK cryptocurrency and go over what the Chainlink network actually does.
To begin with, we need to make a distinction between the LINK token and the network which includes the Chainlink protocol.
Let’s start this guide by jumping right in and briefly introducing each aspect below.
LINK token
As we mentioned briefly above, Chainlink is actually built on top of the Ethereum blockchain.
This means that LINK, the native token of the Chainlink protocol, is actually an ERC-20 token.
Being an ERC-20 token, this means that the LINK token can be managed and stored using an Ethereum compatible wallet such as MetaMask or a Ledger.
Simply send and receive LINK tokens to an Ethereum address like you would any other ERC-20 token.
Currently, the LINK token has two main use-cases:
- Payments: Used for internal payments such as to node operators who maintain the network.
- Staking: Also used by the same node operators who must stake LINK in order to participate and provide requested data services.
When it comes to node operators who stake LINK, those with a higher stake stand more of a chance of being selected to provide data.
In terms of price, let’s finally take a look at the following chart from CoinGecko:
Without going into any deep technical analysis, let’s just say there are worse looking charts in the cryptosphere.
The Chainlink Network
The Chainlink protocol is a decentralised network of nodes that enables real-world data to be made available on-chain.
Of course for a more in-depth look at how the Chainlink protocol works, check out the Chainlink white paper.
But in summary, the Chainlink protocol’s two components are as follows:
- A network of outbound nodes to request off-chain data.
- A network of inbound nodes to synchronise the requested off-chain data onto the blockchain.
So why are the oracles that Chainlink facilitates so important?
Well, in order for blockchain-based smart contracts to be able to read real-world data and truly become relevant, a trusted synchronisation method must be used.
Chainlink provides this method by using oracles to bridge on-chain and off-chain data.
Chainlink certainly has the potential to back up its fair comparison to Ethereum and this guide will continue to explore whether that potential can ever realistically be fulfilled.
How does Chainlink crypto work?
We take a look at how the Chainlink blockchain works and explain it in an easy to understand manner.
When it comes to how Chainlink actually works, the official website puts it best.
Connect your smart contract to the outside world.
Chainlink's decentralized oracle network provides reliable, tamper-proof inputs and outputs for complex smart contracts on any blockchain.
Does that make sense?
Okay, good.
This subsection of our Chainlink guide will help make total sense of the project’s stated purpose and take a look at what it actually does.
How does Chainlink (LINK) work?
What happens when a smart contract requires a concept or information from the outside world which is absent from the contract itself on the blockchain?
This problem is one that is widely known as ’The Oracle Problem'.
Chainlink's goal is to solve this problem by providing a vehicle to connect smart contracts to the outside world's data pools.
They accomplish this by allowing smart contracts to have sight of all important and relevant information necessary to complete the contract in a trustless manner.
In essence, Chainlink's goal is to provide a gateway for smart contracts to interact with real-world data.
The Oracle Problem
So, why is there no simple solution available to solve this 'Oracle Problem'?
The answer lies in solving the dilemma with respect to making the oracle completely trustless, without sacrificing decentralization or security.
To start with, let's say you build a very simple oracle to be connected to a smart contract that requires data from the outside world.
Then say that this oracle fails.
What happens to your smart contract with this failure?
When the oracle fails, the smart contract likewise fails.
This is not all, however, as other problems with a simple oracle include:
- The oracle might be broadcasting false data;
- The oracle created might work only with your smart contract thereby providing no solution system wide;
- Your own reputation may not be sufficient for the satisfaction of auditors to certify the oracle; and,
- If you are running your own oracle, the incentive is present for you to give erroneous data to smart contracts resulting in greater profits for you.
Chainlink has developed a system whereby these problems are solved in a decentralized manner, without sacrificing trust or security.
Chainlink has approached solving these problems in the following five ways:
- Anyone can take part in the network and run their own oracles (decentralization of oracles);
- Smart contract based data aggregation is performed on-chain;
- Provision for support of any source of data - public, subscription based or private;
- Giving the end user an idea of the quality of the oracles used (reputation verification); and,
- Imposition of a penalty/collateral system (LINK tokens are issued as collateral for a Chainlink oracle to accept a request and if the oracle provides bad or false data the tokens are forfeited thereby sullying the oracles reputation).
By providing these solutions, Chainlink provides the blockchain smart contract system with the following beneficial results:
- A smart contract will always function because if one oracle fails Chainlink will automatically supply different oracles;
- Multiple oracles are utilized to result in a consensus correct on-chain answer;
- Every oracle has an on-chain reputation which may be verified by auditors;
- By the penalty/collateral system in place, oracles have both the reputational and financial incentive to provide true and accurate data; and,
- Most importantly, Chainlink has provided unlimited practicality of use, in that any connection for which it has developer support, Chainlink oracles can be used for any practical application within any smart contract.
Concluding how Chainlink works
There are a ton of articles available on the internet concerning Chainlink, but the majority of them are highly involved and extremely technical in nature.
The information provided herein is intended to be as simplistic as possible with the design to give the potential investor an understanding of the inner workings of Chainlink.
The goal herein is to provide sufficient details so that an informed decision concerning LINK can be made.
What are Hybrid Smart Contracts in Chainlink (LINK)?
This is an outline of Hybrid Smart Contracts, as they pertain to Chainlink and LINK crypto.
Chainlink crypto (LINK), is known as the oracle network for powering hybrid smart contracts.
So before we go any deeper into our guide to Chainlink crypto, we need to outline exactly what they are.
But before getting deeper in Hybrid Smart Contracts themselves, it's important to talk a little about what problems they are trying to solve.
Let’s get into it.
Why are Hybrid Smart Contracts necessary?
Smart contracts are regarded as a very efficient solution for contracts nowadays.
Because they run on a Blockchain, they are immutable, easily verifiable and are enforced by code.
This completely removes the unfair influence that one of the involved parties usually enjoys on traditional contract systems.
However, being on a Blockchain also brings a limitation to them, as smart contracts can only read data that exists on the Blockchain.
To resolve that problem, Oracles were introduced to the crypto ecosystem to translate off-chain to on-chain data.
The issue with that approach is that an oracle is a centralized entity, so it can be made faulty and compromise the very core concept of smart contracts.
And that's exactly why hybrid smart contracts can be a perfect solution, connecting the Blockchain network to a Decentralized Oracle Network (DON).
What are Smart Hybrid Contracts?
A hybrid smart contract is an application made of two key components:
- Smart contract: A code that runs exclusively on the Blockchain.
- Decentralized oracle network: A distributed network of oracle nodes that provide information from off-blockchain data sources to on-blockchain smart contracts.
Essentially, what smart hybrid contracts do is combine the best features of each of the environments.
This excerpt from the official Chainlink blog is really helpful to understand the distinct roles of on-chain and off-chain components:
On-Chain: Blockchain:
- Maintain a persistent ledger that provides authoritative custody of users’ assets and interacts with private keys.
- Execute final settlement by processing irreversible transactions that transfer value between users.
- Provide dispute resolution and guardrails to secure the proper functioning of the off-chain services performed by a DON.
Off-Chain: Decentralized Oracle Network:
- Fetch, validate, secure, and deliver data from external APIs to smart contracts running on blockchains and Layer-2 solutions.
- Perform various types of computations for smart contracts running on blockchains and Layer-2 solutions.
- Relay outputs of smart contract code to other blockchains or external systems.
Use cases for Hybrid Smart Contracts
By leveraging all the reliability and scalability of the Blockchain network and integrate off-chain data through a DON, hybrid smart contracts can potentially be applied to many different industries.
Some say they can even completely replace the legal system.
Since they are enforced by the Blockchain, there is no need for an external court system, making them a lot cheaper and enabling safe peer-to-peer transactions.
Also, they are not influenced by local law systems, which completely eliminates the headache that is navigating different court systems on multinational agreements.
Final thoughts on Hybrid Smart Contracts as they pertain to Chainlink crypto and (LINK)
Smart Hybrid Contracts have the potential to be a perfect solution to most, if not all, kinds of transactions in the future.
They could even replace the legal system as we know it, making global interactions faster, cheaper and safer.
Chainlink is looking to be the leading team in hybrid smart contracts so if you are interested in building hybrid smart contracts applications, it can be a good place to start.
What is Chainlink crypto used for?
We explore the main uses for Chainlink crypto in more detail.
We now know that Chainlink is a decentralized oracle network that provides data from off-blockchain sources to on blockchain smart contracts.
At the same time, it maintains the security and reliability inherent to blockchain technology.
It also provides a series of solutions that enhances the ability of smart contracts to interact with the outside world.
LINK is the native cryptocurrency of the Chainlink network.
The supply of LINK tokens is fixed at 1 Billion, and right now there are is 443 million coins in circulation.
In this section of our Chainlink guide, we’re going to mention two specific use cases of Chainlink’s LINK token, an ERC-20 token built on the Ethereum blockchain.
Node Operators Payment
Node operators on Chainlink also called oracles, play a very important role in retrieving real-world data for smart contracts to interact with.
They are required to provide a constant supply of reliable data from different sources and for that particular reason, they are being paid in LINK crypto.
This fee is important to ensure that the network is always on and passing on correct info to different users using open-source chainlink technology.
Recently, we’ve even seen telecom giant Swisscom launch a Chainlink Node for DeFi Data.
Chainlink co-founder Sergey Nazarov is happy to see this trend of multiple enterprises beginning to see the value in running nodes and making the blockchain system more decentralized and powerful.
For more information on this topic, we encourage you to check out Chainlink's official documentation around how to become a node operator using Docker.
Node Operators Deposit
You will be able to run a Chainlink node with 0 LINK in your wallet, however, you will not be able to participate in requests that require a deposit.
Data requests may specify an amount of LINK that all nodes must deposit as a penalty fee in case the node doesn’t fulfil them.
Penalty fees are optional and not all requests will have them.
This fee can be taken away from the oracle in case fail to serve the request.
One can easily sell their Data service to smart contract developers by becoming a chainlink node operator.
Final thoughts on what Chainlink (LINK) is used for
Apart from these two major use cases, the LINK token can be traded on several crypto exchanges.
Native LINK token staking is not available as of right now.
You can however, stake and earn rewards on different DeFi platforms such as AAVE, Yearn Finance and Gemini.
Why are Chainlink HODLers called Link Marines?
Chainlink HODLers are called Link Marines because they wage war on crypto Twitter, shilling Chainlink to anyone who will listen.
The biggest army of shills in the crypto game, are no doubt Chainlink’s Link Marines.
Mobilising as one on Twitter, the Link Marines’ mission is clear, relentless and unwavering.
To elevate Chainlink to what they believe is, LINK’s rightful place as the number one cryptocurrency on the market.
This section of our Chainlink crypto guide takes a look at the biggest army of shills in crypto.
Why the Link Marines?
If you’ve been in crypto for any period of time, you’d no doubt have seen the influence that memes have in the space.
The military-themed Link Marine name is actually a homage to a previous group of crypto shills who repped Ripple and called themselves the XRP Army.
Yep, remember those guys?
With all of Ripple’s regulatory and legal problems, their own army of shills has done an excellent job in pushing through and maintaining XRP’s top 10 position.
If nothing else, you’ve gotta respect the hustle.
The Link Marines had a ready model to base their own shilling on and upon adopting the military moniker, have taken things to the next level.
Are the Link Marines good for Chainlink?
Well, let’s answer a question with another question.
Do you think Chainlink should be a top 15 cryptocurrency by market cap?
If you don’t quite agree with that statement, and to be honest we’d probably say that only the Link Marines do, then obviously they’re good for Chainlink.
While Chainlink has slipped to 13th in the list of cryptocurrencies by market cap, they’re still above huge projects like Polygon (MATIC).
Publishing this blog on the often directionless Hive blockchain and watching other projects like Chainlink and SafeMoon get laser-focused attention from the public, we’re in a good position to offer an opinion.
And there’s no doubting that the attention LINK has gained on the back of the Link Marine’s shilling has been extremely beneficial to the project.
Attention leads to price increases.
From there, it’s up to the devs and the technology itself for the real building to occur.
Is Dave Portnoy still a Link Marine?
The profile of the Link Marines got so big, that even Barstool Sports’ Dave Portnoy once considered himself a member of their ranks.
“I am a Link Marine, I fuckin’ love it.”
“I’m a huge Link Marine. I think I’m $300,000 of one and that thing just rips.”
But after a bit of a public falling out on Twitter with the army where he called them weak, Portnoy jumped ship to invest in SafeMoon.
Whether Portnoy is still a Link Marine or not, actually doesn’t really matter.
The attention that his celebrity endorsement garnered was priceless to the cause and while the Link Marine’s may not publicly say it…
They will be thanking Portnoy for his service.
Is Chainlink DeFi?
This section of our Chainlink guide addresses whether Chainlink (LINK) can be used for DeFi.
In this subsection of our Chainlink crypto guide, we address whether Chainlink (LINK) is DeFi or not.
For those of you who may not know, DeFi is short for Decentralised Finance.
Before we start to look at Chainlink, let’s get a brief definition out of the way.
Decentralised Finance (DeFi)
Decentralised Finance (DeFi) is a blockchain-based form of finance that does not rely on central financial intermediaries such as brokerages, exchanges, or banks to offer traditional financial instruments, and instead utilizes smart contracts on blockchains, the most common being Ethereum.
DeFi platforms allow people to lend or borrow funds from others, speculate on price movements on a range of assets using derivatives, trade cryptocurrencies, insure against risks, and earn interest in savings-like accounts.
Armed with this definition of Defi let's go answer the title question of this section of our guide by taking a look at whether Chainlink is DeFi.
Is Chainlink a DeFi network?
To answer this question, we must first be reminded of what purpose Chainlink (LINK) serves.
Chainlink (LINK) is a decentralised network of nodes that via oracles, provide data and information from off-blockchain sources to on-blockchain smart contracts.
In conjunction with extra secure hardware, this process eliminates the potential reliability issues that could arise from using only one centralised source.
Chainlink (LINK) is an Oracle that provides value to other projects for a fee.
In this way, sites like Aave, a DeFi savings and loan dApp, can automatically calculate the value of coins deposited or borrowed.
Chainlink is the best solution for Defi as fresh data is critical for so many DeFi applications.
It is true that most people, when they hear the term 'DeFi', think of exchanges or investments.
But 'DeFi' has become so much more.
Chainlink (LINK) has become an indispensable and integral component of virtually everything 'DeFi'.
In this regard it may be more easily understood if one considers Chainlink (LINK) as the 'middleman of DeFi', bridging necessary real world data to requesting smart contracts.
This vital 'middleman' role may see Chainlink better classified as a DeFi protocol.
This conclusion is further supported by looking at Chainlink's newly revised Whitepaper, aptly dubbed 'Chainlink 2.0' which was released April 15, 2021.
Co-founder of Chainlink, Sergey Nazarov, has stated that Chainlink is embarking on a plan to evolve the traditional smart contract into a newer 'hybrid smart contract'.
"Hybrid smart contracts are about combining blockchain smart contract application capabilities, and the off-chain world’s proof and data and computations.”
“This is a big leap forward because it redefines what people can build.”
Clearly Chainlink will continue to play an essential and necessary role within the DeFi space going forward.
So, is Chainlink DeFi?
The answer to this question is both yes and no.
Chainlink (LINK) should be considered as the 'middleman of DeFi', bridging necessary real world data to requesting smart contracts.
As such, Chainlink may be better described as a DeFi protocol.
Chainlink's innovation in this area demonstrates an added layer of involvement in the DeFi space that makes it harder to deny Chainlink's place among the perceived DeFi providers.
Chainlink's current and future provision of information essential for allowing smart contracts to function, without a doubt, cements it's place in the 'DeFi' world as it exists today as well as its place in 'DeFis' evolutionary development.
Chainlink (LINK) pros and cons
Let's investigate the pros and cons surrounding the Chainlink (LINK) ecosystem.
Information such as that found within this section of our guide to Chainlink is essential for prospective LINK investors to make an informed investment decision.
With that in mind, let's now get into the list of pros and cons.
Chainlink pros
- Chainlink (LINK) currency allows for a congruity between Bitcoin and Ethereum while also being compatible with banking systems, payment services and investment systems.
- Chainlink's decentralised oracles allow for heightened security surrounding the information provided as well as increased accuracy of said information.
- The company that developed Chainlink has been in business since 2014 operating in the area of contract automation.
- The oracle network developed by Chainlink provides a necessary link between various blockchains and off chain information providers in a trustless manner. By providing this trustless service, Chainlink is one step closer to fully solving the 'Oracle Problem'.
- Chainlink has partnered with some big name companies such as Oracle, Google Cloud, Binance, Polkadot and Swift.
- Chainlink may be utilised in conjunction with any blockchain so its use expansion possibilities is huge.
- As smart contract technology continues to grow into an ever expanding list of new industries, Chainlink's services will be useful in aiding to this expansion. Thereby providing added growth potential for Chainlink.
- In furtherance of the preceding bullet, using Chainlink may aid in allowing current smart contracts to mimic other present outside financial agreements.
- Within the mechanics of Chainlink there is a built-in reward for providers to furnish reliable and accurate data, which may then be passed on to the end user.
- In 2014, Smart Contract began automating monetary instruments. Bringing such experience to the new project should also benefit it, especially since a number of team members have made the switch.
- Chainlink's service allows it's users a cost savings as they are not required to develop there own set of smart contracts to obtain outside information by way of oracles.
- Chainlink is a first-mover in the oracle space thereby providing it a competitive edge over its competitors.
- As of July 23, 2021, per a tweet by Chainlink’s Official Channel, the network’s integrations include: 22 Non-Fungible Token (NFT) projects, 33 infrastructure, 24 gaming projects, 64 node operators, 43 data providers, 84 blockchains and 213 decentralised finance (DeFi) projects".
Chainlink cons
- Chainlink has failed to disclose an official roadmap giving details concerning it's future growth and development.
- Many experts question if the LINK token itself is required for the operation of Chainlink to continue.
- Certain systems within the Chainlink protocol can operate using merely one oracle. This allows for the suspicion of data manipulation.
- Smart contracts are popularised by the project, but their success depends entirely on the relevance of its application. A similar analysis is done for Chainlink (LINK), whose operation is dependent on both the platform's success and internal use.
- There exists too few guarantees that Chainlink's integrations and partnerships will be long term due to increasing competition in the space.
- It is not known how long it will take for Chainlink to implement a real working solution, thus slow development may have an effect.
- Chainlink is a token built on the Ethereum blockchain and as such is subject to all of the problems currently facing Ethereum.
Do the Chainlink (LINK) pros outweigh the cons?
We’re going to leave that decision up to you.
All of the above factors should be taken into consideration when evaluating Chainlink for investment purposes.
Both the surrounding Chainlink pros, as well as cons, should be weighed carefully before making any final investment decisions.
The information herein should not be construed as investment advice, but is presented for educational purposes only.
As always, it is imperative that you do your own diligent research prior to investing in any cryptocurrency and never invest more than you can afford to lose.
Should I buy Chainlink (LINK) in 2021?
We delve deeper into whether an investor should buy LINK in 2021, or allocate their cash elsewhere.
LINK currently has a market cap of $11,685,957,735, ranking it at #13 among all cryptocurrencies.
At the time of writing, LINK is trading at around $26 which is just about 50% under its ATH of $52.70 in May 2021.
In this final subsection of our Chainlink crypto guide, let's investigate the various factors you should consider when deciding whether or not to invest in Chainlink (LINK) in 2021.
So should you buy LINK in 2021?
Let’s take a look at whether you should buy LINK from both sides.
Factors in favour of buying LINK
- Even though Chainlink is not alone in the decentralized oracle space, its first-mover status allowed it to build a big network that integrates many different projects and amassed over half a million non-zero active wallets, creating large trade volumes for LINK
- The new architecture for building hybrid smart contracts introduced in the Chainlink 2.0 Whitepaper is bringing a lot of developer activity to the network, which could lead to more innovation, more users and more activity.
- DeFi market is expected to soar even higher over the next few years and some people even believe that it could hit $ 1 trillion dollars by the end of 2022. Since Chainlink is looking to revolutionize DeFi with its decentralized oracle network and hybrid smart contracts, LINK could really benefit from that growth.
- Some analysts predict that the price of LINK could reach values as high as $120 in the next 3 to 5 years.
Factors against buying LINK
- Competition. Even though Chainlink is the pioneer of decentralized oracle networks other protocols are being developed to compete for users. Some of these are Band, Decentralized Oracle Service, Decentralized Information Asset, Tellor and NEST.
- As described in the brief overview, there are not many use cases for the token yet, other than internal payments and staking.
Final thoughts on buying LINK in 2021
There are no major red flags for LINK and the huge potential of DeFi could actually help to bring a lot of trading volume and increase the token price.
For this reason, we think LINK could prove to be a solid long-term investment.
Chainlink is attempting to solve one of the main limitations of traditional smart contracts, which is the inability of interacting with "real world" (off-chain) data.
If it's able to beat the competition, Chainlink might become one of the biggest names in DeFi.
Based on the information presented within this guide, it appears that Chainlink (LINK) is a healthy prospect for investment in 2021 and beyond.
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