The Beginner’s Guide to Chainlink (LINK)
Chainlink is the frontrunner in the emerging niche of decentralized oracle networks. In less than three years since its release, it has become the favorite instrument for linking smart contracts with off-chain, real-world applications.
The most popular oracle service has already struck partnerships with some of the biggest brands in the world, including Google and Microsoft. Furthermore, its native token, LINK has surged to become the 5th-largest cryptocurrency by market capitalization.
In 2020, DeFi and DApp developers turn to Chainlink whenever they need to retrieve data from off-chain application program interfaces (APIs) and other external resources and later integrate them into the blockchain.
If you are curious to see how Chainlink works, how to buy it, and where to store it, then this beginner’s guide to Chainlink should satisfy your curiosity.
Chainlink in a Nutshell
- Chainlink is a decentralized oracle service
- Chainlink was launched in 2017
- Chainlink is the project of the US-based company SmartContract Ltd.
- Chainlink has a native token called LINK
- Chainlink works as “middleware” between the blockchain and the outside world
- Chainlink is the go-to network of DeFi protocols for price feeds
- Chainlink is available to buy on most of the major crypto exchanges
- Chainlink can be stored in Ethereum-compatible wallets
What is Chainlink?
Chainlink is the first decentralized oracle network of its kind to be built on the Ethereum blockchain. It is a “strange animal” in the world of cryptocurrency, as it is not a form of P2P digital money, nor it is a platform for building smart contracts.
Chainlink is a service that “links” the blockchain to the outside world by translating information from one medium to another.
Everyday applications do not have the means to verify the conditions in the smart contracts that they partake in on the chain. On the other hand, blockchains cannot access information outside their network. So, Chainlink creates a bridge between the entities on each side of the chain to ensure the execution of smart contracts.
Because Chainlink operates on the Ethereum blockchain, its functioning depends on the network and its nodes. The relationship between the oracles and the nodes is symbiotic. As the blockchain protocols evolve, the nodes will rely on the Chainlink oracles to provide them with information from the outside world.
Chainlink also has a native token called LINK that node operators receive as payment. According to CoinMarketCap, at the moment there is a circulating supply of 350,000,000 LINK out of a total supply of 1 billion LINK. The current market cap of Chainlink surpasses $5.5 billion and one LINK trades for approximately $16.
A Brief History of Chainlink
Chainlink has been a project under construction for many years before its release in October 2017. The ICO that helped fund the oracle went almost unnoticed as it managed to raise little over $32 million, which was a disappointing amount especially for the year of the big Bitcoin bubble.
The Chainlink whitepaper was also published in 2017 and shows that the brains behind it are Sergey Nazarov, with Steve Ellis as the other co-founder. The company behind Chainlink is SmartContract Ltd., and it was founded by Nazarov, who is also its CEO.
The whitepaper also describes LINK as an “ERC20 token, with the additional ERC223 ‘transfer and call’ functionality of transfer (address, uint256, bytes), allowing tokens to be received and processed by contracts within a single transaction.”
Additionally, the document mentions that node providers get sizable smart contracts according to how much LINK they own. The more tokens a node has, the largest and more rewarding will the smart contract be.
For the first two years of its life, Chainlink did not manage to get away from the strong grip of the bear market. The big breakthrough came in 2019 when its value skyrocketed from $0.5 to more than $4 in less than 60 days.
The catalyst for this price explosion was the release of the Chainlink Mainnet in May 2019. Additional endorsements from major crypto exchanges like Coinbase cemented its position as one of the rising stars of the cryptocurrency market.
Chainlink confirmed the wunderkind status in 2020 when it reached its all-time high (ATH) trading price of $19.85. Its value is proportionate to the oracle’s use, which has proven to fit perfectly with the needs of the market for Decentralized Finance (DeFi). Almost every DeFi protocol uses Chainlink as an intermediary for price feeds.
As of September 2020, Chainlink is the 5th-largest cryptocurrency by market capitalization, and the future looks bright for the first oracle service on Ethereum.
How does Chainlink work?
Chainlink consists of two parts that must communicate constantly with each other to ensure the well-functioning of the entire system. The two elements are:
- The internal blockchain where the node operators are
- The external off-chain where the oracles get their data from
To understand how Chainlink works, you have to get a good grasp of what oracles are. These third-party sensors “live” outside the blockchain. But, they are digital DeFi instruments, so they are not part of the real-world either. They act as intermediaries between the two environments.
For example, let’s suppose that two nodes on the blockchain make a wager on a real-world event, which could be anything from the result of a sports game to the conclusion of an auction or elections. They put the winning conditions in a smart contract, and wait for a third party (oracle) to provide them with the result.
The node operators provide the off-chain data owners feeds or APIs to send their information to Chainlink.
At this point, a decentralized network of several off-chain oracles forms to provide the requested data. They connect independently of each other to the Ethereum blockchain and send the information that they hold. In return for delivering valid information, they are rewarded with LINK tokens.
Without the oracles, none of the entities would be able to insert the information onto the blockchain, and the smart contract would never become complete.
Where to Buy & Store Chainlink
Due to its constant rise in popularity and use, Chainlink is today available to buy from a wide range of crypto exchanges that include:
Because it is an ERC-20 token, you can store Chainlink in any Ethereum-compatible wallet, such as:
- Ledger Nano S
The Benefits of Investing in Chainlink
- Oracles are critical for the mass adoption of blockchain technology and cryptocurrency, and Chainlink is spearheading their surge to the top of the game
- Chainlink has already struck important partnerships with Chiliz, Google, SWIFT, Hedera Hashgraph, Microsoft, and Oracle among many others to provide information and transaction outputs from smart contracts to legacy systems
- Chainlink looks like a solid investment as SmartContract Ltd. plans to build a wide network of oracles, which will provide services for DApp and DeFi developers