Chainlink is a decentralized oracle service that acts as a bridge between blockchains and the outside world, providing smart contracts with external information and allowing them to interact with other systems.
Smart contracts are agreements that execute code automatically based on pre-specified conditions.
Some smart contracts can function independently when all the information required is on the blockchain, while other smart contracts require input from real world data that does not exist on blockchain but needs to be pulled out from external sources.
Chainlink is the critical technological infrastructure required for blockchain technology to interact with the real world as it is.
How does it work?
- Chainlink is an oracle network built on Ethereum, which is currently compatible with the Bitcoin, Ethereum and other blockchains. If a smart contract needs to ingest real world data to make a decision, Chainlink is how they get it.
- Chainlink acts as a “bridge” between a blockchain and off-chain environments.
- Chainlink protocol aggregates data from its oracle network into a single data point . This is then sent to the smart contract that requested the data. The smart contract in turn pays for this request in link tokens.
- What makes Chainlink unique is that it utilizes a Decentralized Oracle Network, this is a network of data providers who work together to ensure that the data is of high integrity.
- Since anybody can be a data provider the network introduced a Link token to keep bad actors away. Data providers must put forth link tokens via staking as insurance. If the provider begins to provide low quality or inaccurate data, their link tokens can be reduced.
Investment case for Chainlink
- Many blockchains need Chainlink oracles to function. Therefore if blockchain has a chance to succeed so will Chainlink.
- For the blockchain to become mainstream it needs to be linked and be able to obtain information from the real world and existing businesses as they are today.
- Chainlink has already been integrated into 1250 projects , and the need for off chain data will only expand as developers build new blockchain solutions.
- The value of data secured has been growing exponentially over the years . In 2020 it secured 250 million and in 2022 it secured 64 Billion.
- Chainlink has recently introduced staking for token holders . This means that they will be able to stake their Link tokens to support the performance of their oracle network.
- In the future we can expect the staked amount to be almost 50% of the supply since now only data providers can stake. This means the supply of the tokens will decline. High demand and low supply means an eventual increase in token price.
- Chainlink is also introducing a new update to enhance cross chain interoperability. This will make it easier to message across blockchains . It will eliminate the need for developers to build separate bridges to interact with each other. Developers will be able to plug and play into the Chainlink networks and not worry about dealing with contracts or blockchain that may be in different networks.
I hope that these insights will give you a good reason to keep an eye on this project.
Good luck!