What is Chainlink?

What is Chainlink?

What is Chainlink?

What is Chainlink?

Dapps & Protocols

·

9 min

What is Chainlink?

What is Chainlink?

Dapps & Protocols

·

9 min

What is Chainlink?

What is Chainlink?

Dapps & Protocols

·

9 min

What is Chainlink?

What is Chainlink?

Dapps & Protocols

·

9 min

What is Chainlink?

You don't become the most well-known oracle service in crypto without making a serious impact. Enter Chainlink, the decentralized oracle network that has become the gold standard for connecting smart contracts to real-world data. Trusted by the biggest names in blockchain, Chainlink has revolutionized the space with its advanced algorithms and highly secure infrastructure.

The project started in 2014, though it didn't launch until 2017. Chainlink emerged as one of the biggest oracle networks with $40B secured across all DeFi protocols. Thanks to its founder, Sergey Nazarov, and the brilliant team of engineers at Chainlink, the protocol has a near-monopoly on smart-contract data feeds.


If you are new to crypto, then it's important to explain why oracles like Chainlink are crucial for the industry. 

Oracles are important for crypto because they provide a way for smart contracts to interact with the real world, enabling them to execute based on external data inputs. Smart contracts are only as smart as the the data inputs available on the blockchain. In other words, smart contracts still need data from outside the blockchain to expand their functionality.

For example, DeFi protocols need oracles to update their price feeds. This data is gathered from centralized exchanges and other off-chain data providers.


Without an oracle, the DEX would have to rely on outdated price data, potentially resulting in a trade executed at an unfavorable price. By using an oracle for price feeds, DEXs can provide users with accurate and up-to-date pricing information, improving the user experience and increasing the efficiency of the exchange.  

Chainlink derives its data from offering reliable oracle services. Literally any measurable event from the outside world can be fed into the oracle ensure transparency. For example, people can form a Reforestation DAO that allocates resources based on people's action. Reforestation DAO could collectively agree on how success is measured through satellite imagery and transfer the real-world data on-chain through Chainlink to directly tie outcomes to governance token distribution. This is just one of the possible use cases for Chainlink's data feeds. 

At this point, you may be wondering: how can users be sure oracles provide the correct data?

Unlike blockchain networks, who need to reach consensus on transactions, oracles also need to be accurate about the real-world event. This makes oracles more failure-prone than blockchains.


Chainlink doesn't offer any insurance in case the oracle malfunctions. Instead, node operators can have their LINK tokens slashed if the oracle fails to provide accurate data. When it comes to price feeds, the data is aggregated from multiple sources. Specialized oracles like in the Reforestation DAO example may have fewer node operators to rely on. 

Although Chainlink presents itself as a decentralized oracle, it is not as permissionless as you would think. While theoretically anyone can apply to become a node operator, the Chainlink team has the final say. This is because the Chainlink team has all the expertise to assess whether the node operator respects the standards. To their credit, Chainlink has never encountered any major incidents or hacks.

The closest Chainlink was to being hacked was in 2020, when hackers managed to target nine price nodes. The attacker then sent a large number of price requests that left the node operators suddenly paying huge gas fees. This window of time allowed the hacker to buy tokens from 1Inch and sell them for ETH.

According to Chainlink, the attack lasted around 2 hours, but added that its network’s built-in protections against such attacks identified the problem and stopped it before any more funds were lost. 

How does Chainlink work?

Chainlink is made out of oracle networks that feed off-chain data into Web3 dapps. The Chainlink Network serves as an abstraction layer for data providers to easily sell their existing APIs to any blockchain network. Data providers such as AccuWeather have an easy way to feed their data into Web3 apps and get paid.And their numbers continue to grow as the diversity of dapps increases.

Chainlink has come up with the concept of hybrid smart contracts to bridge off-chain and off-chain data to execute more complex and sophisticated operations.


Hybrid smart contracts use Chainlink's decentralized oracle network to securely and reliably connect smart contracts to off-chain data sources. This allows smart contracts to access data inputs that are not available on the blockchain, such as real-world events, financial data, and IoT sensor data. By integrating off-chain data inputs, hybrid smart contracts can execute more complex operations, such as conditional payments, supply chain management, and insurance claims processing.

Chainlink Price Feeds

Perhaps the biggest use case Chainlink is know for is its price feeds. Every DeFi protocol relies on off-chain data in order to update its token prices, and same it goes for NFT markets.

Chainlink oracles aggregate data from multiple price feeds filtering out outliers and inaccurate data points, and delivering a single, reliable data point to smart contracts on the blockchain. The data from these sources is aggregated in a decentralized manner, meaning that no single entity has control over the data.

The aggregated data is then filtered to remove outliers and inaccurate data points, ensuring that only high-quality data is used. That data is then delivered to smart contracts on the blockchain, allowing them to execute based on the most accurate and up-to-date data available.

As an extra security measure, Chainlink uses a reputation system to incentivize providers to maintain the accuracy and reliability of their data.

Chainlink Functions

This service is aimed at dapp developers and generally any smart contract application that requires off-chain data. The best way to explain how Chainlink Functions work is by giving a practical example.

Let's say you want to create a custom bot that buys crypto assets based on the Twitter sentiment. After you've created the smart contract for the bot, you then send your code to a Decentralized Oracle Network (DON).


The DON aggregates all the independent data points and returns the final result to your smart contract. Your code can be anything from simple computation to fetching data from API providers.

Chainlink Functions provides access to off-chain computation without having to run and configure your own Chainlink Node. To pay for requests, you fund a subscription account with LINK. Your subscription is billed only when the DON fulfills your request.

Chainlink VRF

Introducing the 2nd most popular service on Chainlink. VRF stands for Verifiable Random Function. Being able to generate numbers in a fair way is crucial for transparency. Games, lotteries, NFT mints and DeFi protocols all need to generate random numbers in a random and verifiable way. By using VRF, the selection process is secure and unpredictable, ensuring that bad actors cannot manipulate the selection process and compromise the security of the network.


Chainlink Verifiable Random Function (VRF) has become the industry standard random number generator (RNG) solution for smart contracts and off-chain systems. 

Chainlink VRF offers a subscription model for protocols that is paid in LINK tokens. The service costs because Chainlink needs to cover the gas fees and also compute the random number. 

How to make money on Chainlink?

Unless you plan to become a data provider on Chainlink, the only way to put your LINK at good use is vai staking. To successfully participate in staking, you must have at least 1 LINK in your self-custodial wallet. 


Here's how you stake LINK:

  1. Go to the Chainlink Staking Page

  2. Input the amount of LINK you want to stake

  3. Press "Stake LINK"

  4. Accept the terms & conditions

  5. Approve the transaction

The staked LINK will accrue LINK tokens over time. The longer you stake, the higher the payout for helping secure the Chainlink Network.

Price Prediction for LINK: Can it hit $1000?

Buying and hodling LINK — the native token of Chainlink— is one way of potentially making money on Chainlink.

By looking at its current price, it’s natural to think about the chance of LINK hitting $1000 per token. This can happen sooner, or way in the future, and is determined by a couple of ever changing factors.

Let’s examine the potential growth of the LINK token by analyzing its tokenomics. LINK’s current market cap sits comfortably at ${MARKET_CAP}. With {CIRCULATING_SUPPLY} LINK tokens being in circulation today, that means a price of {PRICE} per LINK.

How did we come to that calculation? It’s quite easy, the price of a LINK token is equal to its current market cap divided by the number of tokens in circulation. Dividing ${MARKET_CAP} by {CIRCULATING_SUPPLY} gives us a result of {PRICE} for each LINK coin. 

By changing the order in the simple formula above we can use it to calculate other things as well. This helps us a lot because we can deduce the market cap of LINK at different token prices. Then, we can use the result to compare it to the current state of the network and see what would be required for LINK to hit that price.

At a price of $1000 per token, that means the current market cap of LINK would equal ${{CIRCULATING_SUPPLY} * 1000}. Remember that we arrived at this number by multiplying the amount of circulating tokens by $1000.

Now let’s shift our attention to the fully diluted market cap.

Some blockchains may have their tokenomics built in a way that only a small percentage of tokens are circulating at the beginning. This can be misleading because we don’t have the full picture and only take into account the current number of coins released in the market.

The fully diluted market cap represents the total value of a coin if all tokens were in circulation. LINK’s whole supply of tokens is {MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} LINK which means that no more coins above that number will ever be created.

These tokens are not created at the discretion of a specific entity. They are created automatically by the network to reward different actors that keep it secure.

How does this impact the price of LINK? Taking into account the current price of a LINK token, that would result in a fully diluted market cap of ${MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY * PRICE}. LINK coins that have been burned are not taken into consideration because they have been permanently removed from circulation.

Whether it seems gigantic or not, the number we came to above only takes into account the current price of a LINK token. Doing the same calculation but with a price of $1000 gives us a result of ${{MAX_SUPPLY - TOTAL_SUPPLY + CIRCULATING_SUPPLY} * 1000} for the LINK protocol fully diluted market cap.

These are all crucial details to know when calculating if LINK can reach the price of $1000 per token. If the diluted market capitalization is way too high, the token has little room left to grow. Blockchains in general have no cap on the value they can reach, whether that number seems possible it’s totally up to you.

The future of LINK depends solely on its growth as a network used by tens and hundreds of millions of users.

If you’re looking to add some LINK to your portfolio, the most trusted places to get some are Binance and Coinbase.


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