What is Chainlink (LINK)?
Chainlink was created to address the problem of sourcing accurate real-world data for smart contracts to do their jobs – to be a bridge between the emerging blockchain industry and the traditional economy. It was developed by SmartContract.com, a company founded by Steve Ellis and Sergey Nazarov, and launched in June 2017.
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Chainlink also supports a verifiable random function (VRF), which can be used for random number generation in decentralised gaming.
Chainlink (LINK) Basics
The Chainlink ecosystem is all about matching trustworthy real-world data providers to users’ needs. In simple terms, the system works like this:
- A user sets up a requesting contract for a specific piece of information. They pay a fee in LINK tokens to do this
- The Chainlink algorithm then registers that as an event and creates a matching smart contract known as a Chainlink Service Level Agreement (SLA). This allows it to access data from the blockchain
- The SLA then creates three sub-contracts:
- Reputation Contract – checks nodes (oracles) for reliability
- Order-Matching Contract – sends request to matching nodes, receives bids back, and chooses the suitable ones
- Aggregating Contract – validates data from single and multiple nodes. If needed, it can do this multiple times, removing mismatching data, then calculating an average
- The aggregated, validated answer or data is then delivered to the original user
Chainlink runs on the Ethereum blockchain, with LINK being an ERC677 token. As such, it relies on a proof-of-stake consensus algorithm.
At the core of how Chainlink works are its data providers, known as ‘oracles.’ These are node operators which have staked LINK in the network, and so can be sanctioned if they misbehave and provide false information. Oracles earn rewards in the form of LINK tokens.
LINK Supply and Tokenomics
There is a hard cap of 1 billion LINK tokens. From this total, the developers allocated 35% for oracles, 30% for developers, and 35% for public sale in events like the original ICO (initial coin offering). Users requesting data have to pay a fee in LINK.
LINK Adoption & Usability
As explained above, the main uses of LINK tokens are to pay the Chainlink network to provide data and for staking by node operators (oracles). Of course, LINK can also be traded on secondary markets, and used to make other payments. At the time of writing, in late November 2022, LINK was ranked the 23rd biggest cryptocurrency by market capitalization (as per CoinGecko data).
Major data vendors are already using Chainlink across the capital markets, DeFi, sports, esports, digital art and NFTs, and news spaces. These include CoinGecko, AccuWeather, Associated Press, Google Cloud, GameScorekeeper, Kraken, NFT Bank, Binance, Huobi, and Digital Asset Research.
LINK Network Fees & Speed
Because it is a token running on Ethereum, LINK both benefits from Ethereum’s strengths, like security, but also suffers from its flaws like network congestion and gas fees (which must be paid in ETH).
LINK Security and Safety
Like all ERC-20 tokens, LINK benefits from the network security of Ethereum, which is widely considered to be one of the most secure networks in the world. However, as with all cryptos, there are risks when using third-party platforms like exchanges and wallets.
Security and safety tips:
- Don’t leave your LINK on-exchange for longer than absolutely necessary. If you are not currently trading, transfer them to a local wallet for short-term storage or staking.
- For long-term storage or staking, keep your crypto in a hardware wallet.
- Always keep your wallet keys in multiple safe places – they cannot be recovered.
- Never tell anyone about your crypto holdings. No matter how secure your storage is, if you or your loved ones are physically threatened, you’ll probably hand over your personal keys.
Just like most free-floating cryptos, LINK has experienced extreme price volatility since launching. From around $0.11 it experienced relatively steady growth for a couple of years, before rocketing to over $50 at the height of the 2021 bull market. However, by the time of writing in November 2022, it was trading at just under $7.
Final Word on Chainlink (LINK)
Chainlink is a compelling crypto for one main reason – it was developed to address a potentially huge market. Essentially, the Chainlink network has the ability to remove expensive middlemen in virtually every industry. This is in stark contrast to many other crypto projects, which often lack clear use cases beyond payments and speculation.
The hard cap on the supply of LINK should also help push the price up over time, which again, is more attractive for long-term investors than inflationary cryptos. Of course, whether Chainlink can reach its potential, will depend on achieving mainstream adoption. And, as always, that will boil down to effective marketing, continued development, and a decent dose of luck.