Chainlink Whitepaper Summary – Future of Decentralized Oracle Network
What is Chainlink (LINK)
Steve Ellis and Sergey Nazarov founded Chainlink in 2017. Chainlink was created by Chainlink Labs, a software business based in San Francisco but registered in the Cayman Islands. In a 2017 ICO (Initial CEX Offering), Chainlink raised $32 million, and it’s mainnet launched in 2019.
The goal of Chainlink is to supply off-chain data, such as the value of different coins and tokens, to cryptocurrency blockchains. Most decentralised applications couldn’t function without this off-chain information. Chainlink uses a number of oracles to offer off-chain data.
The term Oracle refers to middleware software that serves as a data translator between the outside world and blockchain-based smart contracts. Chainlink simply uses the average of these oracles’ responses as the “trusted answer ” for what the price of that coin or token is at the moment.
These oracles supply pricing data on various cryptocurrencies. This prevents the manipulation of off-chain data and maintains the decentralisation of decentralised apps because a centralised data feed would be a single point of failure.
EMERGENCE OF CHAINLINK (LINK)
Decoding the emergence as described in the Chainlink Whitepaper, it was created in 2014, but was launched in 2017. Students at Cornell University, Professor Sergey Nazarov, Steve Ellis, and Dr. Ari Juels developed the concept of Chainlink and since 2017 it has been a crucial link for supplying dependable, high-quality data to and from blockchain networks.
Chainlink raised 32 million by selling its native token LINK in a 2017 Initial Coin Offering(ICO). The oracle dilemma is a term used in the blockchain community to describe this discrepancy between the promise of decentralised computation and the prevalence of our current data and API economy.
Additional Read: Chainlink vs Polkadot
Chainlink’s data feed architecture mainly comprises of :-
- Basic Request Model(BRM) – It comprises the on-chain architecture that uses a single oracle source to fulfil data requests. The key elements of BRM are as follows :-
- ChainlinkClient – It is a parent contract that permits smart contracts to use oracles as a source of data.
- LINK Token – LINK is an ERC-677 compliant token that implements “transferAndCall”, a feature that enables token transfers in a single transaction and activates logic in the receiving contract.
- Oracle Contract – Oracle contracts (Request and Fulfilment) are possessed by the owners of Oracle node operators, which function alongside off-chain Oracle nodes .
- Off-Chain Oracle Node – The on-chain smart contract is in charge of emitting events, and the off-chain oracle node is in charge of listening for those events. It uses the data emitted to carry out a task after detecting an OracleRequest event.
- Decentralised Data Model – It deals with data aggregation in order to generate Chainlink Data Feeds and provides more information on how price feeds are updated. It has the following key components: –
- Data Aggregation – Multiple separate Chainlink oracle operators update each data feed. On-chain data is aggregated by the AccessControlledOffchainAggregator – a GitHub repository page.
- Shared Data Resource – Each data feed is created and supported by the community of users whose smart contracts depend on accurate, up-to-date data.
- Decentralised Oracle Network – The data feed aggregator contract must obtain responses from a certain minimum number of oracles for an update to occur otherwise, the most recent answer won’t be updated. For this purpose a decentralised oracle network is required.
- Off-Chain Reporting – The OCR protocol enables nodes to utilise a safe P2P network to combine observations into a single report off-chain. The aggregated information is then included in a transaction that a single node submits to the chain. Each report must be signed by a majority of nodes and contains observations from numerous nodes. These signatures have on-chain verification.
ADVANTAGES OF CHAINLINK (LINK)
Chainlink’s can be used for various domains as follows:-
- In Blockchain Games
Randomness is important in creating unpredictability and fairly disseminating in-game objects, both of which improve the gaming experience. The recently released Verifiable Random Function (VRF) from Chainlink makes it possible to design an engaging and fair game with a crucial source of randomness.
- In Supply Chains
By automating crucial business processes, smart contracts can reduce counter-party risk and friction in international trade. Using Chainlink oracles, supply chain smart contracts can be connected to cloud networks, online APIs, and a range of physical sensors, such as GPS, temperature, acceleration, humidity, light, and more. This data may be used to initiate payments and data transfers amongst partners in a way that no single supply chain participant can influence.
- In Payments Solution
Smart contracts need to have access to a wide variety of payment options in order to satisfy global demand due to the huge variation of payment preferences seen around the world. Chainlink is able to handle a variety of payment services since it can send smart contract outputs to external APIs.
The LINK ERC-20 token, which is a part of the Chainlink ecosystem, is utilized to compensate networked data suppliers for their work. The token is given to the data provider by the data subscriber.
But the data providers also use the token as collateral and lock it into smart contracts. The assets are placed to act as collateral for payment to the data subscriber in the event that erroneous or no data is delivered. The likelihood that a data provider will be chosen by data subscribers increases with the amount of collateral it offers.
Data providers can also grow their collateral pools by borrowing more LINK tokens. Data providers share a portion of the data revenue with investors while staking services offer tokens. Due to their larger collateral, they are typically viewed as being more secure than other suppliers, giving them a competitive edge.
At the time of writing, it is trading for $7.5 which is around 85% down from its All time high of $52.88 . It has a live market cap of $3,541,971,434, and ranks #24 on CoinMarketCap. It has a maximum supply capped at 1,000,000,000 LINK of which 469,599,970.45 LINK are currently in circulation.
CHAINLINK’S (LINK Price) PERFORMANCE OVER THE YEARS
Decoding CHAINLINK Whitepaper (ROADMAP & VISION)
Chainlink has become a foundational infrastructure for the smart contract economy and therefore it’s important to scale its security in order to match the increasing amount of value within Chainlink-powered applications. This era of sustainable growth and security begins with staking and is called Chainlink Economics 2.0.
Staking aims to bring a new layer of security to Chainlink, wherein crypto rewards and penalties are used to incentivise the proper operation of the network. The staking of LINK tokens will enhance the ability for nodes to receive jobs and earn corresponding fees. The initial implementation of Chainlink staking is planned for the second half of 2022 and it will be expanded further over time. Chainlink staking will be built around four goals and these would act as pillars to define the success of staking in the future.
- To increase the security and user assurances of Chainlink services:
This is the primary goal of Chainlink staking and will be achieved by enabling LINK tokens to be locked up as a form of guarantee of service. Staking will bring up a mechanism of rewards and penalty to encourage the Chainlink nodes to consistently generate accurate reports and deliver them timely.
- To enable the participation of Chainlink community:
Staking will be helpful in empowering a greater number of community members to participate in the Chainlink network and support the oracle networks. The network would reward a staker for giving valid and timely alerts for an oracle service that does not meet the predefined performance standards. This community participation will be helpful in further decentralising the Chainlink network.
- To generate sustainable rewards for the long term:
The team believes that with staking they will build various ways for rewarding the stakers. In future, when network adoption would increase, more protocol fees would be generated and a greater portion of rewards would be given.
Chainlink fills the gap in the market by providing an infrastructure for trading with oracles. The lack of a decentralised infrastructure for trading with Oracles is a challenge for smart contracts in Ethereum and other blockchains. The project is still under development and only time can tell if the system will work as expected.
Data providers such as Chainlink will keep gaining importance as more and more smart contracts will find suitable use cases. Chainlink does have a very bright future if it continues to grow and execute its plans. The introduction of staking will also be a pivotal moment for the evolution to Chainlink Economics 2.0 which will bring with it increased long term security and network economics.
Chainlink has goals of scaling its network into a global standard with a growing and sustainable user base. The introduction of staking will also give greater rewards and opportunities to the stakers who will help in increasing the network’s crypto economic security and user assurances.
HOW TO INVEST IN CHAINLINK (LINK)
You may consider to use this three-step process to buy your first LINK token using the CoinDCX, crypto investment app.
- Sign Up for the CoinDCX account: Enter a valid email address and a user name on the sign-up page. Once the Email Id has been verified, set a strong password to secure your account.
- Verify the account: You need to complete your KYC, to buy LINK token on the CoinDCX platform. All you need to do is upload the documents and your account will be set up in 15 minutes.
- Buy LINK: After the account has been verified, you can deposit any amount of fiat currency you are comfortable with and start your crypto journey!
Additional Read: Polygon MATIC Whitepaper Summary
Disclaimer: User Generated Content – Original Content created by a member of BITS Pilani, under the consultation of Dr. Amit Dua, Assistant Professor, Computer Science Department, BITS Pilani, Pilani Campus in association with CoinDCX. The views and opinions expressed within this post belong solely to the author.
Author: Aman Bansal, Aditya Choraria