Chainlink is a blockchain platform that was developed to facilitate the use of smart contracts by companies looking to leverage real-world data or transactions via blockchains.
It is also one of the earliest projects focused on achieving interoperability among several decentralized networks.
The Chainlink platform allows many companies and financial institutions to employ its network as an infrastructure to record their transactions and data on a distributed ledger like the blockchain.
In other words, the Chainlink network basically works as a link between offline (real world) information and Blockchain. As its name implies, ChainLink means a link between chains.
How Chainlink was Created
Chainlink, created by Sergey Nazarov, was officially open in June 2019.
Two years before its eventual launch, the platform already held its ICO (Initial Coin Offering). At the time, 1 billion tokens were already created, with only 350 million tokens made available in the initial coin offer.
Chainlink’s ICO raised 32 million dollars, giving the project enough support to continue its development and gain more followers, while also strengthening the crypto assets that pay the network.
Chainlink gained more fame when major market players, Google, WEB3 Foundation, and Swift, a multinational company of internet interbank payment systems, started to use its technology.
In addition, the founder of DocuSign, a digital signature platform used around the world, Tom Gonser, is a consultant for Chainlink, which has increased its reputation and brought more visibility to the project.
What is Chainlink for?
ChainLink has a very clear objective in the crypto universe, which is to act as a bridge between the real world and various existing blockchains like Ethereum.
It also aims to enable Smart Contracts technology within specific blockchains.
Another simpler way to look at it is to say that Chainlink’s role is to avoid conflicts in data transmission between different systems, ensuring information integrity and security.
Without the right technology to provide such a solution, the only way to do this would be through a centralized third party.
In other words, in practice, Chainlink eliminates the need for trust and employs sophisticated blockchain tech to create an ecosystem where data transfer is easy, accessible, and true.
LINK is the native crypto token native to the Chainlink platform and serves as the currency in exchange for validations of the information added by users.
In other words, it is a token or crypto asset that feeds the Chainlink network.
How Chainlink Technology Works
Here we will look at three structures; smart contract, real-world information, and validating oracle protocol.
First, it is important to understand the concept of Smart Contracts.
Smart contracts are essentially eponymous – contracts that are quite “smart”. A smart contract would execute on its own once a certain predetermined condition has been met without the input of an intermediary.
They are decentralized and self-executing and are known for handling data with a high degree of reliability, thus saving a lot of time and money if these actions were performed by humans.
In practice, it means that they certify the validity of transactions and added information, transforming them into unique records, intelligent contracts, which connect to each other and guarantee the integrity of each other.
The problem is that Smart Contracts alone cannot access real-world data to decode the information and understand what action will be taken.
This is exactly where ChainLink comes in. Chainlink will transport this data from the offline world – the real world, into the blockchain. Once inside, the data will be processed by Smart Contracts.
Such contracts are mostly financial contracts, which need market data, and insurance contracts, which need the information to decide on the payment policies of the parties involved.
This information can be any type of data that can in any way impact economic sectors and finance. So, they may be information such as results of football matches, data on large imports or exports of products, quotations of various currencies, including cryptos, among other information that are part of some financial/monetary ecosystem.
As an example of “real-world information” that can be registered with Smart Contracts, you can consider the tokenization of a non-fungible asset (NFT).
For example, a work of art can be registered in the blockchain with information that guarantees its authenticity and its ownership to the asset holder.
Without a network like ChainLink, working with Smart Contracts would be much more difficult or would involve building solutions based entirely on other blockchains.
This is all made possible by ChainLink’s platform architecture, which has two separate structures. The on-chain infrastructure and the infrastructure outside the chain, that is, the part that captures the real-world data that will be used by Smart Contracts.
Validating Oracle Information
ChainLink website claims it is a decentralized and tamper-proof network that uses oracles (a DeFi instrument) to supply actual data for smart agreements.
Oracles provide data into the platform, putting their data (and values) to the test in a process called a “stake.”
Proof of Stake (PoS also called Proof of Participation) is the method used to add additional LINK token units to the network.
It is a process analogous to bitcoin mining (PoW) which is the way to insert new units of the BTC currency into the market. We’ll explain the Proof of Stake process in more detail below.
In the case of Chainlink, the network oracles deposit their LINK coins (LINK are also ChainLink tokens) as a way to ensure that the information that is coming in and going out is correct.
At the same time, the network uses a system that will assess the reputation of this data, also ensuring that there was no manipulation by the oracles, which provide the information.
At the end of this validation process, if the information and data are really correct, the oracles who supplied the information are rewarded in LINK tokens by unlocking the tokens they deposited.
This capability gives the ChainLink platform the characteristic of interoperability, as it works as a bridge between different types of systems.
Main Differences between Bitcoin and Chainlink
The main differences between ChainLink and Bitcoin are related to the dynamics of the process and also the purpose of each crypto asset:
Consensus protocol and platform structure
Unlike Chainlink, Bitcoin (BTC) has its entire operation on its own blockchain. It manages to insert new BTC units into the market as miners validate transactions within blocks. They are rewarded, in Bitcoin, for the work of validating transactions.
This process is known as the “Proof of Work” consensus protocol. We can say that Bitcoin’s role is to provide a decentralized system, in which users could have greater control over their own money, executing financial transactions securely and quickly. ChainLink, on the other hand, works by the Proof of Stake protocol.
In Proof of Stake, users of the network need to buy their participation in it, through the purchase of tokens. In this protocol model, what matters most from the users’ point of view is the number of coins he has and how long he has had them.
The greater the number of coins and their possession time, the greater the participation (stake) of the user in the crypto asset blockchain, and the greater the interest of the user in keeping the network working properly.
These are some of the criteria used to select users who will validate the information, but there is also the randomness factor.
Blockchains internal architecture
Bitcoin’s blockchain is unique, it works like a ledger with the specific purpose of recording all transactions that took place in your system in a public way: Anyone can access the blockchain and perform a transaction query.
Chainlink, in turn, is a network that includes oracles and different types of blockchains. It currently operates on the Ethereum blockchain, and its main objective is to function as a bridge that takes real-world information into the blockchain so that this information can be validated and used in Smart Contracts.
How to Buy Chainlink (LINK)
The LINK token is among the most popular cryptocurrencies, with the fifteenth biggest market capitalization according to CoinMarketCap.
1. Using a cryptocurrency exchange
The first and most reliable way to invest in Chainlink (LINK) tokens is through a broker.
The brokerage firm performs the entire process of intermediating transactions between the parties involved, in addition to providing its own virtual wallet to store its cryptocurrencies.
Some popular brokers that are available in the US are:
While brokering exchanges like Binance and Coinbase are available in many countries, brokers like NDAX and Bitbuy are only exclusive to Canada, while exchanges like BitBroker, serve only users in the UK.
2. Token Extraction
The second is through the extraction of tokens by the Proof of Stake protocol, a process described in the topic above.
Finally, the third is through P2P (or peer-to-peer) trading, which is basically a purchase or sale directly with another person, not using a trusted intermediary such as a broker.
The risk of this type of transaction is that there is no guarantee that you will receive your tokens or your money, as the relationship between the parties is purely based on trust.
How to Mine Chainlink
As we already saw in detail how Chainlink’s consensus protocol works, we understand that the platform uses the stake protocol which is by guarantee.
Therefore, it is not correct to say that it is possible to mine Chainlink (LINK) tokens, since there are no miners and no reward for proof of work.
ChainLink (LINK) Quote Today
The price of Chainlink (LINK) appreciated over 500% in 2020.
In February 2020, LINK was quoted at $4.50, and since then the currency has appreciated exponentially, reaching an incredible $19.11 in August and closing the year at $12.67.
It didn’t stop there, however. January 2021 saw the currency spike by another 101%, marking a variation of an incredible $11.25 to $23.50 between the 1st and the 30th of January.
The currency continues to appreciate and has traded at more than $30 between April and August.
ChainLink has a maximum supply of 1 billion tokens, of which 419 million are currently in circulation (which represents 42 percent of the total volume).
As of August 2021, it has 11 billion dollars in market capitalization.
What are the Prospects for ChainLink?
There are specialists who are betting all their chips on ChainLink. Some even claim it has the potential to become the top altcoin in traders’ choice.
Cane Island financial analyst and consultant Timothy Peterson believes that LINK could value up to 300% by the end of 2021. Timothy explained that LINK could surpass market giants like Bitcoin and Ethereum because he believes these two are experiencing a bubble, and as they have already appreciated widely since November 2020 until the present moment, the analyst believes that soon there will be no more room to continue with the appreciation of these two currencies.
The Chainlink’s platform functionality draws a lot of attention from powerful institutions and entities, the possibility of integrating the cryptocurrency with other financial projects can also affect the price positively, bringing even more appreciation to the currency and putting it more and more in the spotlight for traders.
It’s definitely a coin to watch closely.