In this day and age, we’ve got the traditional world and the world of blockchain, but how do they interact with one another? Projects like Chainlink bridge the gap between these two worlds using a cluster of oracles to help transmit information both on and off-chain to help seamlessly integrate everything.
Chainlink is an integral part of the blockchain industry for that very reason because it helps create an information link that powers blockchains and lets them do what they were built to do.
What is an Oracle?
Oracles are a crucial link between the real world and the blockchain space. They enable blockchains to grab secure, reliable and up to date information from around the world at any given moment and upload it to blockchains. Smart contracts executed on blockchains frequently rely on real-world data such as price action or volume. Since blockchains are unable to collect off-chain data themselves, the need for oracles like Chainlink has arisen.
One of the obvious use cases for these oracles is to make real world financial data available to various DeFi platforms. The oracle does this by pulling in real-world data, typically from a number of sources, and verifying the accuracy of that data. This can be accomplished in a number of ways. Once the data has been accumulated and verified it is then relayed to the receiving blockchain. This allows for the creation of decentralized finance apps, insurance protocols, payment systems and much more.
Beyond the obvious, oracles are more than just connectors between blockchain and the real world. Aside from simply transmitting information and data to the blockchain, there is a need for oracles to solve the data gathering dilemma as well. That’s where Chainlink and other creative oracles come into play.
Chainlink: The King of Oracles
Chainlink has been around since 2014 and has progressively become more and more important thanks to the wide variety of services it offers. In addition to its decentralized oracle network, Chainlink also has cross-chain bridges, verifiable randomness generators, off-chain computation for DApps and a roster of other impressive products to help improve, build or scale projects in the blockchain space. The Chainlink team has identified no less than 77 different smart contract use cases for Chainlink.
The LINK Token
Like many of the industry’s most essential decentralized pillars, Chainlink relies on token holders to power its service offerings and keep the oracle network running. That means incentivizing people to help contribute to the decentralized oracle network by paying LINK tokens to node operators. The strategy has worked well, making the LINK token the 16th largest by market capitalization (November 2021), with its market cap at $13.92 billion. The fact that the next closest oracle network UMA has a market cap of just $1.31 billion we think highlights Chainlink as the King of Oracles quite nicely.
The LINK token also plays an important role in that it is the native token used to pay for decentralized oracle services in the Chainlink ecosystem. Since Chainlink is decentralized it remains a core component of the decentralized finance (DeFi) space.
The Importance of LINK
If the DeFi space is of any interest to you, it makes complete sense to check out and consider investing in Chainlink. Without the decentralized oracle network, smart contracts wouldn't be nearly as robust or useful and blockchain would suffer for it. Chainlink brings great value to any project that needs to transfer data from the outside on-chain, or from on-chain to the outside world.
If it is to be believed that the DeFi space and the entire blockchain industry as a whole are both still in their relative infancy, then it isn’t a stretch to assume that Chainlink becomes more and more critical as time goes on. As blockchains scale and smart contracts become more integrated into everyday life, bridging the gap between real world data and the blockchain becomes a necessity, making Chainlink potentially very valuable in the DeFi and blockchain space.
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Breidenbach, Lorenz; Chacin, Christian; Chan, Benedict; Coventry, Alex; Ellis, Steven; Juels, Ari; Koushanfar, Farinaz; Miller, Andrew; Magauran, Brendan; Moroz, Daniel; Nazarov, Sergey; Topliceanu, Alexandru; Tramèr, Florian; Zhang, Fan (15 April 2021) . "Chainlink 2.0. The Next Steps in the Evolution of Decentralized Oracle Networks 9 Economics and Cryptoeconomics Staking" (paper). research.chain.link/whitepaper-v2.pdf. University of Bern, Cornell Tech, University of California, University of Illinois Urbana-Champaign, Duke University. research.chain.link. pp. 2, 78. Retrieved 4 July 2021 – via Microsoft Bing – https://chain.link.
Caldarelli, Giulio, and Joshua Ellul. 2021. "The Blockchain Oracle Problem in Decentralized Finance—A Multivocal Approach" Applied Sciences 11, no. 16: 7572. https://doi.org/10.3390/app11167572