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Cryptocurrency Guide | Guides

What Is Chainlink (LINK)? All You Need To Know

Author

Rickie Sanchez

Tags

Tags Editor's Choice / Slider Posts

Reading time

4 mins
Last update

Author

Rickie Sanchez

Tags

Editor's Choice / Slider Posts

Reading time

4 mins
Last update

Author

Rickie Sanchez

Tags

Editor's Choice, Slider Posts

Reading time

4 mins
Last update

Chainlink (LINK)

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Key Takeaways

  • Chainlink (LINK) is a cryptocurrency project focused on creating a decentralized oracle network.
  • Blockchains struggle to access data outside their networks, limiting smart contract functionality. Thus, Chainlink creates a network of oracles to provide blockchains with secure and reliable real-world data.
  • LINK is a native token that fuels the Chainlink network and is used for payments and network security.

Chainlink (LINK) is a cryptocurrency project that aims to bridge the gap between blockchains and the real world by providing a decentralized oracle network. An oracle is simply a computer (a node) that gathers data from different sources and then sends it to a smart contract that needs this data on the blockchain.

The project aims to enable smart contracts to interact with real-world data and events. This unlocks a wider range of applications for blockchain technology, such as DeFi, supply chain management, and the Internet of Things (IoT).

Chainlink (LINK) is a decentralized oracle network, acting as a middleman between blockchains and the real world. Here’s a breakdown of how it works:

Requesting Data

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Smart contracts, which are self-executing programs on a blockchain, can’t directly access external data. Instead, they initiate a request through the Chainlink network to interact with real-world information. This request specifies the type of data needed and the desired security level.

Oracle Selection

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Chainlink does not rely on a single data source. Instead, it utilizes a decentralized network of oracles. These oracles are independent entities responsible for retrieving data from external sources like APIs or web servers:

  • Service Level Agreements (SLAs) – The requesting contract can specify requirements in an SLA. This SLA might outline the data source, desired accuracy, and even collateral put down by oracles to ensure good behavior.
  • Chainlink’s Reputation System – Chainlink maintains a reputation system that evaluates oracles’ past performance. This helps select reliable oracles for each data request.

Data Fetching

Based on the request and reputation scores, Chainlink selects a set of oracles to retrieve the data. Each oracle independently fetches the data from the designated source.

Data Aggregation And Security

The retrieved data from different oracles is sent back to Chainlink. Chainlink’s smart contracts, called aggregation contracts, play a crucial role here:

  • Data Aggregation – They combine the data from various oracles, often using techniques like median or averaging to eliminate outliers and improve accuracy.
  • Tamper Detection – The aggregation contracts can also identify inconsistencies between the data points. This helps detect and discard potentially manipulated data.

Delivering Data To Smart Contracts

Once the data is aggregated and secured, the final, reliable data point is delivered back to the smart contract requesting it on the blockchain. Based on the received data, the smart contract can then proceed with its programmed actions.

LINK tokens are used to pay oracles for their data retrieval services. The requesting smart contract pays in LINK, and the network distributes the fees among the participating oracles.

This process ensures that smart contracts can securely access and leverage real-world data for their operations, enabling a more comprehensive range of functionalities within the blockchain ecosystem.

Tokenomics

The LINK token is Chainlink’s native cryptocurrency. It is used for:

  • Enabling data access for smart contracts
  • Incentivizing data providers
  • Maintaining security and reliability

Token Details

Total Supply 1,000,000,000 LINK

Circulating Supply 587,099,970 LINK

Current Price $15.00

Market Capitalization $8,811,260,156

This information is current as of May 17th, 2024, and the token’s price, market value, and available supply may fluctuate.

Distribution

  • Initial Coin Offering (35%)
  • Node Operators & Ecosystem (35%)
  • Company (30%)

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Pros

  • Market Niche – Chainlink occupies a unique and valuable niche in the crypto market: decentralized oracles.
  • Blockchain Agnostic – Chainlink isn’t limited to just one blockchain but can work with various platforms, making it more adaptable.
  • Real-World Applications – Chainlink facilitates real-world data access for smart contracts, opening doors for innovative applications in finance, supply chain management, and more.

Cons

  • Token Utility Debate – LINK tokens do not have direct utility within the Chainlink network besides node operator payments.
  • Centralized Token Distribution – A significant portion of the token supply (30%) is allocated to the founding team, which some view as a centralization risk.
  • Competition – The decentralized oracle space attracts new players, and Chainlink faces competition for dominance in this field.

Final Thoughts

Whether Chainlink (LINK) is a good investment depends on your risk tolerance and goals. Remember, this guide only provides a starting point for your research. Always conduct your due diligence before making any investment decisions.