EQONEX is pleased to announce another new exchange listing: Chainlink’s LINK token.
Chainlink provides a critical service in the blockchain ecosystem, bringing external information into decentralized applications to enable more sophisticated use cases. The LINK token has consistently ranked among the top 20 tokens over the last two years, a testament to the value of its role.
To understand Chainlink’s role in the blockchain ecosystem, it’s necessary to know how a smart contract works. At the most basic level, a smart contract operates on an if-this-then-that logic, performing actions that generate a set of outputs based on a given input.
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However, a blockchain operates as a closed environment, only recognizing events that happen on-chain. Everything on the blockchain must be verifiable by the nodes on the network, which presents an inherent challenge in bringing off-chain data to the blockchain.
The problem is, there’s minimal value in a blockchain that only works with on-chain data. For instance, an often-used example of a smart contract is insurance payouts. If a farmer loses a harvest to bad weather, the insurance contract could payout automatically based on confirmed weather reports. However, relying on one party to provide a weather report introduces a point of centralization, which could be vulnerable to manipulation or takeover by a malicious entity.
This example is hypothetical, but the challenge has financial ramifications when it comes to decentralized financial applications. Price data is off-chain, as the price is determined on the global cryptocurrency markets, but, on the other hand, DeFi dApps such as Uniswap rely on price data to drive their markets. Chainlink meets this demand with its decentralized, trustless, oracles which feed data into blockchain applications.
Chainlink is effectively a middleware layer that sits between a blockchain and the real world. It uses a decentralized network of nodes to source off-chain data that can be aggregated reliably and trustlessly into a point of truth and called into a smart contract.
Each time a smart contract attempts to retrieve data from a Chainlink oracle, the protocol creates a smart contract that comprises three elements: reputation, order-matching, and aggregation. The Chainlink smart contract first checks the network reputation score for available oracle providers. It then undertakes an order matching process to request nodes to submit a bid for the original request.
Finally, eligible bids are aggregated into a single result that can be returned to the smart contract. The bidding process, along with reputation scoring, ensures that nodes are incentivized to provide high-quality data.
However, most critically, the aggregation process ensures that data is of high quality. Even if a node passes the reputation test, if they return a significantly different value from the rest, the Chainlink protocol will disregard it automatically to ensure the user receives the most accurate response. It will also negatively affect the reputation score if a node behaves in this way.
The LINK token underpins the economy of the Chainlink ecosystem. When a developer configures their smart contract to make a call from a Chainlink oracle, they pay for the results in LINK tokens. The market sets the value of LINK based on supply and demand.
The LINK token doesn’t play any role in off-chain governance.
Chainlink has grown to become the industry standard for decentralized oracles in the blockchain sector. It started in 2017, founded by CEO Sergey Nazarov and CTO Steve Ellis. The project raised $32 million in a 2017 token sale and launched on the Ethereum mainnet in 2019.
It picked up early traction when one of Google’s developer advocates published a blog post explaining how to use Google Cloud and Ethereum to build hybrid blockchain applications with Chainlink as middleware.
The publicity saw the LINK token shoot into the top 20 tokens ranked by market cap, where it has remained ever since.
However, as DeFi has boomed and the demand for oracles’ services has risen accordingly, Chainlink has undergone a wave of adoption and endorsement. Its decentralized price feeds are now integrated into apps including Aave, Synthetix, Yearn Finance, and CeFi lending app Celsius.
Chainlink started offering price feeds for Ethereum but has expanded its offering to Binance Smart Chain, Polygon, Avalanche, and other platforms.
Chainlink wasn’t the only project developing a decentralized oracle solution when it started life in 2017. However, it’s risen to become the go-to provider for reliable and trustless price feeds for DeFi projects.
The project has also initiated a grants program which seems set to expand its footprint into other markets. For instance, Shrub recently received a grant to bring disaster insurance to uninsured populations. With a broader array of applications in scope, Chainlink will be in a solid position to cement its role further as the de-facto leader of the blockchain oracle segment.
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