What is chainlink?

What is Chainlink

Chainlink is a decentralized oracle network aimed at establishing a reliable data source for clients and nodes connected to oracles. Compatible with Ethereum, Bitcoin, and Hyperledger, Chainlink considers modularity, with each part of the Chainlink system being upgradable.

Chainlink addresses the oracle problem by introducing an intermediary solution. This solution creates a decentralized oracle network that connects to the outside world via APIs. Nodes then provide answers needed by smart contract creators (users) to Chainlink smart contracts, which aggregate the data into a weighted answer and enter it into the user's smart contract without disrupting blockchain consensus.

Chainlink also facilitates external adapter connections to different networks via APIs, providing node connections for external systems (such as other blockchains or backend systems). These external adapters can be customized for any system and written in any programming language, enabling Chainlink to be used on any blockchain (public, permissioned, or private) and to connect to any external system. With this new capability, smart contracts can now access a variety of resources previously unattainable, such as smart contracts for fiat currency, credit cards, and any data-executing smart contracts.

Reference: https://zombit.info/chainlink/#/

Why do we need Oracles？

We all know that the innovation of blockchain lies in the irreversibility and tamper-proof nature of information once it is on the chain, ensuring the “security” of the data. However, if the data itself is not native to the blockchain, there are risks to the “accuracy” of the data. For example, an airline may upload flight hours for pilots and flight attendants to the blockchain as a trusted data repository. However, if the airline allows employees to work overtime to evade government regulations and manipulates flight hours before uploading data to the blockchain, the data uploaded to the chain is incorrect. In such a case, the government still cannot fully trust the data on the blockchain, and the issue of trust remains unresolved.

Oracles are systems that provide real-world information to the blockchain. Whether it's financial products, insurance, logistics, prediction markets, or asset collateralization services, trustworthy oracles are essential for building decentralized systems. Miners on the chain can view the results of events through one or more Oracle data checks.

YouTube Link:https://www.youtube.com/watch？v=0LHCcYGkgBA

Whether it's business applications, gaming, or academic research, Oracle is a “must-have” in the future smart contract ecosystem, bridging the gap between blockchain and the real world. Our protagonist today, Chainlink, is the solution for decentralized Oracles.

Chainlink Nodes

Chainlink nodes are providers of Oracles, mainly responsible for providing data services to smart contracts. To become a Chainlink node and earn corresponding rewards through data services, one must stake the Chainlink token LINK. Once malicious behavior occurs, such as taking money from users without providing services, the staked LINK will act as a fine to protect users.

In the Chainlink Oracle, there is a so-called reputation system, which evaluates the integrity of the node based on factors such as the amount of LINK staked by the node, history, such as the number of transactions assigned, the number of user data requests accepted, the number of transactions completed, the number of times the smart contract accepted the answer, and the average response time.

Nodes staking more LINK will have higher reputations and higher work opportunities, leading to increased income. Generally, rational nodes would want to maintain a high reputation because nodes with poor reputations will find it difficult to be assigned transactions in the future, and other users will be unwilling to use data analysis provided by nodes with poor reputations.

Reference: https://zombit.info/chainlink/#/

Why is the oracle so important？

For example:

A and B are betting on a baseball game, with a bet of $20. To prevent either party from defaulting, the bet is placed on a smart contract on the memory blockchain, which will give the winning party $20 based on the outcome of the game.

However, because smart contracts cannot actively obtain competition results (from the external world), when the competition ends, smart contracts need to obtain data on the competition results, and this channel for providing data is Chainlink.

The function of the oracle here is like an API interface, connecting DeFi smart contracts on the memory blockchain with the external world, and providing real data from the external world of the smart contract.

In the world of memory blockchain, the external data of the memory blockchain is called “off-chain data”, while the data already stored on the memory blockchain is called “on-chain data”. Due to the decentralized closed world of the memory blockchain, “off-chain data” and “on-chain data” cannot communicate with each other, but the birth of the oracle solved this pain point.

Each memory blockchain is a closed small world that can only process data within its world, while data beyond its world cannot be distinguished. Therefore, without an oracle to provide external data for each memory blockchain, it will be unable to exchange information with the real world and produce greater substantive applications for human society.

So, in simple terms, an oracle is a compatible tool between the memory blockchain and the external world, which can provide real external world data and information to the memory blockchain, allowing it to connect with the real world.

How Chainlink Operates

To facilitate users' communication with external data sources, Chainlink divides its execution process into three different steps:

1. Oracle selection:

Users draft a Service Level Agreement (SLA) and specify a series of required data requirements. The software pairs users with Oracles that can provide data based on the SLA. Once parameters are set, users submit the SLA and deposit LINK cryptocurrency into an order-matching contract to receive bids from Oracles.

2. Data reporting:

This is where Oracles connect to external resources and retrieve real-world data requested in the SLA. The data is then processed by the Oracle and sent back to contracts running on the Chainlink blockchain.

3. Aggregation of results:

The final step involves aggregating the data results collected by the Oracles and returning them to an aggregation contract. The aggregation contract then evaluates the validity of each response and returns a weighted score to the user using the sum of all received data.

Architecture

The Chainlink blockchain is powered by three types of smart contracts:

- Aggregation contract:

Collects data from Oracles and matches the most accurate results with the smart contracts that need them.

- Order-matching contract:

Matches the Service Level Agreement (SLA) of smart contracts with the best bidding Oracles.

- Reputation contract:

Validates and determines the integrity of Oracles by examining their track records, including factors such as the total number of completed requests, average response time, and the amount of LINK cryptocurrency staked by Oracle.

For more information, visit: https://www.kraken.com/zh-cn/learn/what-is-chainlink-link

Despite this, Chainlink also interacts with Oracles not running on its blockchain, which independently collects real-world data requested by contracts. These nodes consist of two parts:

- Chainlink Core: Responsible for reading newly submitted SLAs and assigning tasks to Chainlink adapters.

- Chainlink Adapters: Act as bridges between nodes and external data sources. These adapters can read and process data, and then write it to blockchain.

Users seeking to stay connected with Chainlink's current development status can follow its official project tracker for the latest detailed information.

For more technical content, you can check out:

- Chainlink Whitepaper: https://link.smartcontract.com/whitepaper

- Developer Documentation: https://docs.chain.link/

FAQ

What is Chainlink？

Chainlink is a blockchain platform designed to connect smart contracts with external data sources and APIs. It allows smart contracts to securely invoke external data and achieve interoperability with the real world.

What is the value of Chainlink？

The primary value of Chainlink lies in providing reliable external data sources for smart contracts and achieving decentralization, security, and trust through its network.

How does Chainlink ensure data security？

Chainlink employs various security measures, including cryptographic techniques, node selection mechanisms, and data verification, to ensure the integrity and accuracy of external data.

What are the future prospects of Chainlink？

Chainlink has broad application prospects in the blockchain industry. With the increasing popularity of smart contracts and the growing demand, the value and influence of Chainlink are expected to further rise.

How can one participate in the Chainlink ecosystem？

You can participate in the Chainlink network by purchasing LINK tokens and joining its network or by developing smart contract applications based on Chainlink.