What Is Chainlink?

What Is Chainlink?

Chainlink is quickly becoming an important tool blockchains use to gather information from the outside world. Learn more about what makes it unique and how it works.

Smart contracts have come to play an increasingly central role in the world of blockchain and decentralized finance (DeFi). Their implementation helps to realize the core aspiration of Bitcoin and other decentralized networks – namely, enabling people to make secure peer-to-peer (P2P) transactions by removing the need for intermediaries like banks or governments.

Chainlink is a decentralized oracle network that provides this much-needed stream of information to the smart contracts that run on various blockchains. It aims to make smart contracts an even more powerful tool by enabling them to draw on dynamic data inputs gathered from outside sources.

What Sets Chainlink Apart?

Chainlink was a pioneer in enabling off-chain data to be integrated with existing smart contracts. It has therefore built up a strong reputation and already has the support of several high-profile players in the blockchain and wider tech spaces. Among others, Huobi, Brave New Coin and Alpha Vantage have all begun to sell their data to Chainlink.

Since it is a decentralized and open source network, Chainlink encourages a large number of users to operate nodes on the network and rewards them in the form of its native LINK token.

How Does Chainlink Work?

Chainlink facilitates communication between blockchains and external data sources through the following steps:

1. Chainlink matches oracles with blockchain operators that seek out real-world information in an automated process.

2. Once oracles are selected, they will get to work obtaining the desired data from an external source (e.g. a report of banking interest rates).

3. This new information will be routed through Chainlink to the operator’s blockchain. It will then be input to the smart contracts to make changes according to the updated and reliable information.

Chainlink Nodes

Keep in mind that anyone can run a Chainlink node if they have access to all the right equipment. Chainlink’s nodes can be divided into two types:

Core: These nodes have the responsibility of reading the service-level agreements (SLAs) and streaming all new assignments and pairs to the Chainlink adapter.

Adapter: These nodes facilitate the bridge between the node and the external data. The adapters can read and write new information to blockchain smart contracts.

Which Blockchain Does Chainlink Run On?

Chainlink uses an Ethereum-based ERC-20 token to secure the oracle network. However, Chainlink is a step ahead of Ethereum, as it already has a proof-of-stake (PoS) consensus mechanism already in place. PoS determines which nodes will validate transactions based on how many LINK tokens they have staked on the network.

Created on 14th Jul 2021