Chainlink Review

What is Chainlink?

Chainlink is a decentralized oracle network, aimed to bring real-world data to on-chain smart contracts. Chainlink was originally built on Ethereum but was initially planned as a chain-agnostic network service which may run on any blockchain. 

Chainlink is a direct descendant of its founders’ previous project, SmartContract, which started in 2014. Its parent company intended to establish a middle-layer infrastructure, essential to connect blockchains and the real world. The need to rely on centralized oracles’ data entirely gave the team an idea of creating a decentralized analog.

After a $32 million ICO round held in September 2017, Chainlink launched its mainnet in June 2019. 

How does Chainlink work?

Chainlink was created as an answer to the Blockchain Oracle Problem. Long story short, as long as blockchains are completely isolated from real-world data and have limited input/output capability, these networks cannot access off-chain data by their own means. And while it is still technically possible to rely on centralized oracles, such services present serious risks to privacy and negate the benefit of smart contracts. Chainlink solves the problem by using a decentralized network of nodes to verify input and output data before it triggers smart contracts. 

Chainlink has a structure similar to any blockchain, except it operates as an undercover meta-layer that connects existing smart contracts with various types of external data. For that, the project uses a vast network of reliable node operators and data providers. 

Data providers can monetize their existing infrastructure by feeding off information to the Chainlink Network through APIs, solely focusing on data quality without a need to run a node. Binance, Brave New Coin, Alpha Vantage, and Huobi are currently on the list of Chainlink’s data providers.

Node operators are the backbone of the Chainlink Network. They are responsible for running and maintaining oracle infrastructure and earn rewards when they aggregate oracle data from external sources, validate it, and feed it directly to smart contracts. Each fulfilled request is later deployed on the blockchain via a smart contract. LINK token is used to pay the fees for the data provided, depending on its complexity and value. 

Chainlink managed to combine on-chain and off-chain infrastructure by means of the so-called hybrid smart contracts. Different types of oracles run on the Chainlink network in parallel, providing price data across a wide range of assets, weather data, or location data. There is also a long list of Chainlink External Adapters whose job is to wrap off-chain data into a format smart contracts may recognize. 

All Chainlink nodes are trustworthy, Sybil-resistant, and verified. Chainlink Market is a community-run data hub enlisting all the nodes and data providers.

How to use Chainlink?

Chainlink’s most popular product, Price Feeds, is now running on over 300 various DeFi projects on different blockchains, providing critical market data needed to issue, settle, and secure DeFi applications. The network provides other useful services, such as Chainlink VRF, a tool used for generating cryptographically secure randomness for blockchain-based gaming applications and NFTs.

Chainlink solved the scalability problems of its growing network in February 2021 with the launch of Chainlink Off-Chain Reporting (OCR). This major upgrade improved the efficiency of computation across the network significantly, with operating costs being reduced by up to 90%. 

There is also a Chainlink Proof of Reserve feature built to provide on-chain reference feeds for smart contracts with the data needed to ensure that any asset is fully collateralized by off-chain reserves. 

Another feature vital for the DeFi ecosystem, Chainlink Keepers, lets dApps automate smart contract executions. This product was meant as a helping hand to newborn DeFi projects, letting them integrate trustworthy ready-made solutions instead of developing complex core infrastructure from scratch. Since its launch, this tool has been implemented on various DeFi services, with Aave and Synthetix among the biggest clients.

Chainlink’s most recently released feature, Cross-Chain Interoperability Protocol (CCIP), may as well revolutionize the DeFi market forever as a big step towards the multichain future. Launched in August 2021, this open-source messaging standard enables data and smart contract commands to transfer across different blockchains while also providing an interface for cross-chain dApps development. Some of the many usage cases of CCIP may be cross-chain yield farming or cross-chain collateralized loans. CCIP is already connected to Celsius, a $13 billion CeFi platform. In addition to CCIP, Chainlink has introduced its Programmable Token Bridge, a decentralized service that enables the transfer of tokens across different blockchains in a highly secure way.

CCIP is protected from malicious activity by a decentralized Anti-Fraud Network of independent nodes, aimed to secure high-value contracts monitoring CCIP services directly for any actions that could lead to financial loss.

The LINK token

LINK is Chainlink’s native token that empowers the network with incentives for nodes and data providers. 

LINK is an ERC677 token with the same functionality as an ERC20 token standard which additionally allows token transfers to contain a data payload. LINK is needed to pay for the services of node operators and data providers. The token also is required to be deposited by node operators, as a safeguard and incentive against misbehaving while running a node.

LINK tokens can be stored in any wallet that supports the ERC20 standard.

Is Chainlink safe?

The Chainlink team was created in 2014 when Sergey Nazarov and Steve Ellis founded the SmartContracts company aiming to develop a middle-chain infrastructure for data processing. Years later, the parent company appears to merge with Chainlink Labs, the organization standing behind the research and development of the decentralized oracle networks and their solutions.

Sergey Nazarov is currently the CEO of Chainlink Labs, while Steve Ellis is still the CTO at smart contracts. Chainlink also employs a number of developers, academics, and enterprise experts specialized in the fields of cryptography, decentralized systems, and smart contracts.

Partners 

Chainlink is an open-sourced project meaning any member of the community may check its code, build additional tools or propose upgrades. The network maintains the Chainlink Community Grant program, issuing rewards for friendly developers. There are currently 44 recipients of Chainlink’s grants.

Chainlink’s ecosystem is growing rapidly. As of the time of writing, there are 696 projects one way or another integrated into the decentralized oracle networks, with AAVE, Synthetix, Yearn Finance, Celsius, Kyber Network, DY/DX to name a few.

What's next?

Though there’s no clear roadmap published by Chanlink as of yet, the recent Chainlink 2.0 whitepaper reflects developers’ views on the future evolution of decentralized oracle networks. According to the document, Chainlink will continue to promote its hybrid smart contracts invented to mix on-chain instructions with real-world data. Among other directions the project is heading, asset tokenization is worth mentioning. 

Links

https://docs.chain.link/