Chainlink is one of the most popular cryptocurrencies of the year 2019. LINK token has multiplied its market value and made the whole project one of the biggest talking points. Why is everyone talking about Chainlink so much? Keep reading and you’ll find out!
Chainlink is an Ethereum-based token
First, let’s put Chainlink to the correct category of cryptocurrencies. This isn’t so simple, because Chainlink has few (if any) direct competitors in the world of cryptos.
Bitcoin, Litecoin and Dash are examples of cryptocurrencies designed to be P2P digital money. Ethereum, EOS and Tron are on the other hand examples of platforms, which give a framework for smart contracts. They are operating systems, like Android, iOS or Windows.
Then we have a third category, where all tokens are placed. These are cryptocurrencies created on one of the previously mentioned platforms and provide utility inside a certain application. Chainlink fits best in this category.
The name Chainlink can refer to the whole project or to its native token, which has also the short name LINK in exchanges.
LINK token is built on Ethereum but it’s not an ERC20 token, like hundreds of others. LINK is based on Ethereum’s ERC667 standard. You can study the differences between ERC20 and ERC667 tokens from this article.
This also means that there is no Chainlink blockchain.
Chainlink is an American project
The company behind the Chainlink project is called SmartContract Ltd. It has offices in New York and San Francisco, which makes Chainlink an American project.
The CEO of SmartContract Ltd is Sergey Nazarov. He’s a seasoned cryptocurrency expert, who has been part of the scene since 2011. Another important team member is Steve Ellis, who is currently the CTO of SmartContract. You can find the entire team from this page.
Chainlink has been in development for years, but it didn’t gain popularity until its ICO on October 2017. The project raised 32 million USD, which is a relatively small number compared to the biggest ICOs in the market. Chainlink’s white paper was also published in October 2017.
The project was laying low during the 2018 bear market. Almost nobody was talking about Chainlink and the LINK token crashed down like every other altcoin. It finally broke the bank in summer of 2019, when LINK token moved from 0.5$ to over 4$ in just two months.
This price rise was boosted by significant agreements and the launch of Chainlink MainNet in May. LINK also rocketed hard after it was added to Coinbase.
As the name suggests, Chainlink wants to provide a link between a smart contract and data located outside its blockchain. Chainlink has branded itself as middleware. It can be seen as a utility program or a collection of tools available for software developers.
Let’s see what problems this middleware can solve.
Chainlink, smart contracts and oracles
Chainlink is all about smart contracts. These are programmable agreements, which many people have learnt through Ethereum. Note, that also other platforms (EOS, Tron, NEO etc.) support smart contract, not just Ethereum.
A smart contract is a digital and programmable agreement on a certain event. In practice, it’s a piece of code in a blockchain, which can have both inputs and outputs. What makes a smart contract so special is the fact it’s immutable. It processes all tasks given to it exactly based on the parameters.
The difference between a traditional contract and a smart contract is often highlighted by using a bank or an insurance company as an example. A bank might promise you a certain interest rate on your deposit, but what if there’s a banking crisis and people lose their money? There are also countless examples of insurance companies not paying for victims for various reasons.
There are always bad actors or other events, which might lead to cancelling of agreements you thought you had. But there is no room for manipulation when it comes to smart contracts. They are immutable and process the given parameters the same way every single time.
We could use betting as an example of a smart contract. Two people can make a bet on a football match result where the winner takes all. Both lock their stakes into a smart contract, where it stays in an escrow. The smart contract rewards the winner after the match has been settled. It would also have certain rules, such as the match must be played for 90 mins, it has to be played on a certain date etc.
Smart contracts, however, lack one critical feature. They cannot read any data outside their blockchain.
For us to settle this betting example, our smart contract would need external data from the football match in question. This is where an oracle comes into the picture. An oracle is an external data source.
An oracle could be an application, which reads football match results and sends this information to a smart contract. Internet of Things, IOT, will provide thousands of examples of oracles shortly. For example, a sensor in a self-driving car sending data to blockchain would be called a hardware oracle.
Chainlink is solving oracle problems
Chainlink is developed to solve some critical issues between smart contracts and oracles. First of all, you should understand that Chainlink has developed neither of them. Both smart contracts and oracles have existed long before Chainlink.
The problem is now that your smart contract is often depending on one data source. Even if you’d design a fancy distributed application, it can be corrupted by a third-party data provider. Your smart contract might get false information by accident or even on purpose. This will create a single point of failure.
There are also other technical issues one should consider. What if the oracle goes offline or gets under a DDOS attack? The whole smart contract would become nonoperating.
Chainlink has a solution to this problem: a distributed network of oracles. In this case, oracles are called chainlinks, which might be a little bit confusing at first.
When a smart contract is using distributed oracles, it can always maintain its integrity. Chainlink is building a network of oracles, where each oracle has also an incentive to produce the highest quality information. The network will rank each oracle based on its actions and it will reward the best ones with LINK tokens.
Some people might think AION right now, which tries to build interoperability between blockchains. That is not the case with Chainlink, which doesn’t even have its blockchain. There is also no mining of the LINK token.
You should see Chainlink as a bundle of applications and services, which can be implemented into different blockchains. Chainlink is almost like a collection of API connections.
At first, Chainlink will be operational in the Ethereum blockchain. The software was launched in the Ethereum MainNet on May 2019, which was a big milestone for Chainlink.
Check the video, where Chainlink founder Sergey Nazarov is talking about the project at the time of the MainNet launch.
The Ethereum launch will also make Chainlink compatible with EOS and Tron, which are also using the Ethereum’s EVM processor. We’d see further implementations in the future.
LINK token and chainlinks explained
Normally we’d go through things like mining and the consensus algorithm, but this cannot be done with Chainlink. As mentioned earlier, Chainlink doesn’t have its blockchain. It is simply an application running in the Ethereum blockchain.
The Chainlink concept is a bit difficult to understand at first. The following picture might help you to figure it out:
We’d also clear out the terms oracle, chainlink and a node because they can be quite confusing at first.
The whole project is called Chainlink, which is in practice a distributed network of oracles. These oracles are also called chainlinks. One oracle (= chainlink) is built on two major pieces:
- The on-chain part, which is a contract of the transfer between the oracle and a smart contract.
- The off-chain part, which is the data-retrieving component. In the Chainlink concept, this is called a node.
As mentioned earlier, the LINK token is used inside the Chainlink system. It has two major functions in the network.
Each node must stake a certain amount of LINK tokens as collateral when they start to provide data to the Chainlink network. If the information is poor quality, the node will be penalized, and the staked tokens are lost.
LINK tokens are also used to reward nodes providing high-quality information. Hence, there is always an incentive to produce correct data to the network.
Let’s go back to our football betting example and let’s say that 9 out of 10 oracles in the network would provide a result of 2-1 FT. But, one oracle would say the match ends 2-2 FT. The Chainlink network would then assume that the 2-2 FT result is wrong, and it might also penalize the node.
It’s important to understand that the Chainlink network is permissionless, just like Bitcoin’s network is. Anyone can set up their service and start to provide information.
In the Chainlink system, a software developer is a customer, who needs outside data for his smart contract. He pays for the data provider using LINK tokens according to certain contract terms. Setting up your chainlink (= oracle) can be seen as setting up a virtual company.
This concept is quite different from any other cryptocurrency project. If you look at Bitcoin, nodes are maintaining the network and handling its transactions. In Chainlink’s case, this is done by the Ethereum network nodes. Chainlink nodes are data providers in its network.
The most significant partners of Chainlink
One of the driving factors behind the Chainlink buzz is partnership agreements. There are quite a few important ones, which we should mention here. Many analysts like the fact that Chainlink has partnered up with SWIFT.
The SWIFT partnership means that Chainlink could provide transaction outputs from smart contracts to legacy systems. Let’s go back to our football betting example. What if the winner of the bet could decide that the payment is done in euros instead of Bitcoins?
This partnership will also open doors to the financial sector, which is very interesting.
Google is another major partner. The technology giant has built a test environment, where Chainlink works as a link between Google’s big data and the Ethereum blockchain.
When this partnership was announced in June 2019, the LINK token went up 50% in one day. You can read more about the Google + Chainlink partnership from this article.
Chainlink has also partnered up with Hedera Hashgraph, Microsoft and Oracle. The whole list is available in this Reddit post.
Investing in Chainlink
Chainlink has gained lots of popularity among crypto investors. Its success is a combination of many different things, but it’s safe to say that the LINK token is probably the most discussed in early 2019. One important factor is the status Chainlink has in its niche; there aren’t any direct competitors in the market.
Chainlink isn’t tied to any particular blockchain either, even if runs now only on Ethereum. It is important for investors that Chainlink’s future doesn’t go together with Ethereum or any other blockchain.
Data Dash is a very popular and high-quality crypto channel on Youtube. It published recently a list of top ten most potential altcoins for 2020 and Chainlink was number one. See the video below, the Chainlink presentation starts at 33:40.
The high-quality partnerships have brought a lot of credibility and new investors for Chainlink. One of the major boosts has been the Coinbase listing.
The price of the LINK token is tied to the success of Chainlink. Its price will go up if there is more demand for the services of the Chainlink network. All LINK tokens are pre-mined, so there won’t be any new ones coming to the market.
Chainlink is confident that the smart contract market will grow a lot in the future. In theory, they could replace almost every traditional contract. The possibilities are almost endless: financial world, insurances, supply chain management, betting and so on.
Chainlink wants to build a wide network of oracles, which provide services for dApp developers. The project has a very good position in its niche right now.
One should remember, that the Chainlink project is still in early stages. Many key features are still words on the white paper. The success of Chainlink will be measured in the upcoming millennium.
The real-time price of LINK:
Chainlink is an Ethereum token based on the ERC667 standard, which makes it compatible with the popular ERC20 standard as well. This means that LINK tokens can be stored in any Ethereum wallet.
To keep up with Chainlink, follow them on Twitter @chainlink and on Reddit at reddit.com/r/chainlink. The official website is at chain.link. It’s recommended to start your Chainlink studies by listening to the following podcast, where Anthony Pompliano is interviewing Sergey Nazarov.
Images: Chain.link, Google