What is Chainlink (LINK)?

Chainlink is the industry standard for building, accessing, and selling oracle services to power hybrid smart contracts on any blockchain. Chainlink oracle networks enable smart contracts to connect to any external API and leverage secure off-chain computations, powering feature-rich decentralized applications across major industries like DeFi, insurance, and gaming. As a universal gateway to all blockchains, Chainlink provides global enterprises and leading data providers simple integration of real-world data into blockchain environments.

The Chainlink Network refers to the multitude of decentralized oracle networks built using the Chainlink protocol. It consists of individual oracles, data providers running their own nodes, and node operators that enable smart contracts to quickly and securely connect to off-chain data sources. As middleware between blockchains and external data sources, the Chainlink Network serves both as critical infrastructure for developers building robust, real-world connected dApps, and as an abstraction layer for data providers to easily sell existing APIs to any blockchain. Key features include high-quality data and premium APIs, flexibility to transmit any data across chains, highly secure and transparent node operators, Sybil-resistant decentralized networks, defense-in-depth security, broad adoption and network effects, and a strong foundation of academic research and engineering.

History of Chainlink (LINK)

Who created Chainlink

Chainlink was created in 2017 by Sergey Nazarov and Steve Ellis, who co-authored a white paper introducing the Chainlink protocol and network with Cornell University professor Ari Juels the same year. Sergey Nazarov is the co-founder and CEO of Chainlink Labs.

History

• September 2017: The Chainlink protocol was created by Chainlink Labs (formerly known as SmartContract), which itself was founded in 2014 by Sergey Nazarov and Steve Ellis.
• May 2019: Chainlink goes live on Ethereum.
• 2020: New Chainlink offerings like VRFs and Proof of Reserves are introduced.
• April 2021: The Chainlink 2.0 whitepaper is released, outlining a decentralized oracle network, cross-chain interoperability, and a LINK staking model.
• August 2021: Chainlink Automation product goes live on Ethereum after a successful beta.
• June 2022: Chainlink introduces Economics 2.0, including the BUILD and SCALE programs and a LINK staking roadmap.
• December 2022: Chainlink releases Staking v0.1, enabling community members to stake towards ETH-USD price feeds.
• July 2023: Chainlink’s Cross-Chain Interoperability Protocol officially launches on Avalanche, Ethereum, Optimism, and Polygon.
• August 2023: Chainlink publishes a roadmap for Staking v0.2.
• November 2023: Chainlink Staking v0.2 is live.

What is Chainlink used for?

Chainlink is used to provide external data and off-chain computation to on-chain smart contracts in a decentralized manner. Some of the main uses and capabilities of Chainlink include:

Price Feeds

Chainlink provides decentralized price reference data to DeFi applications for currencies (e.g. BTC/USD), commodities, indices, and more. This allows DeFi protocols to build financial products.

Automated Actions

Chainlink oracles enable smart contracts to be automatically triggered based on external data inputs and outputs. This allows for automated decentralized finance activities.

Verifiable Randomness

Chainlink VRF (Verifiable Random Function) allows smart contracts to access tamper-proof randomness to enable fair contract results. Useful for NFT drops, gaming, etc.

Computation

Chainlink allows computationally intensive tasks like machine learning to happen off-chain, with the outputs then relayed on-chain via oracles. This expands smart contract capabilities.

Cross-Chain Communication

Chainlink CCIP (Cross-Chain Interoperability Protocol) enables blockchain networks to interoperate and exchange data via Chainlink oracles.

In summary, Chainlink integrates real-world data into smart contracts to expand the capabilities and use cases for blockchains and decentralized applications. It provides critical oracle infrastructure to blockchain networks.

Design

Decentralized Oracle Networks

At the core of Chainlink are Decentralized Oracle Networks (DONs). DONs are networks maintained by committees of independent Chainlink node operators. They act as a blockchain abstraction layer, providing smart contracts with interfaces to connect with off-chain resources for data and computation.

Each DON is rooted in a consensus protocol that allows the node committee to choose which oracle functions to deploy to support blockchain networks. The goal of a DON is to enable hybrid smart contracts - combining on-chain and high-efficiency off-chain computation with connections to external resources.

While DONs utilize committees, Chainlink remains fundamentally permissionless. Node operators can come together to build custom oracle networks with different regimes for including nodes - either permissioned or permissionless.

On top of the DON foundation, Chainlink looks to innovate in several key areas:

• Hybrid smart contracts - Combining blockchain with off-chain resources
• Abstracting away complexity - Simplifying integration for developers
• Scaling - Increasing efficiency and throughput of oracle networks
• Confidentiality - Preserving privacy for oracle operations
• Order-fairness - Fair transaction ordering and execution
• Trust minimization - Reducing reliance on any single part of the system
• Incentive-based security - Economic mechanisms ensuring honest behavior

Verifiable Random Function (VRF)

Chainlink has launched its Verifiable Random Function (VRF) v2, which allows smart contracts to access random values securely. The VRF generates random values and cryptographic proofs, ensuring that results cannot be manipulated. The new version offers two methods for requesting randomness: subscription and direct funding. The subscription method is suitable for regular requests and supports multiple contracts, while the direct funding method is better for infrequent requests. Chainlink VRF v2 is now available on certain networks, and more networks will be added in the future.

Chainlink CCIP

Chainlink CCIP allows for the seamless transfer of assets and information across multiple blockchains, enabling application developers to leverage the strengths of different chains. With Chainlink CCIP, developers can build cross-chain applications and serve more users with additional features. The protocol prioritizes security, utilizing features such as a Risk Management Network and decentralized oracle computation. Chainlink CCIP supports arbitrary messaging, token transfers, and programmable token transfers. It is being utilized for various use cases such as cross-chain lending and optimizing cross-chain yield.

Data Feeds

Chainlink Data Feeds provide quick and reliable connections between smart contracts and real-world data such as asset prices, reserve balances, NFT floor prices, and L2 sequencer health. Different types of data feeds, including Price Feeds, Proof of Reserve Feeds, NFT Floor Price Feeds, Rate and Volatility Feeds, and L2 Sequencer Uptime Feeds, cater to specific needs. Consumers, proxy contracts, and aggregator contracts are the key components of a data feed. Monitoring of data feeds is crucial to protect against market events and delays.

Tokenomics

The LINK token is critical to Chainlink's economic model, serving as the key mechanism for payment, incentives, and security assurances around oracle services.

The supply side

node operators launch new oracle networks and optimize existing ones to drive further adoption of Chainlink-powered smart contracts. This captures more fee opportunities and enables higher value use cases through increased security guarantees like staking.

The demand side

Users pay node operators in LINK to access requested oracle services. In the future, node operators and community members will also stake LINK as a commitment to good performance, enforced via economic incentives and penalties.

As Chainlink adoption grows from more blockchain projects utilizing oracle networks, there are more opportunities for node operators to earn fees and strengthen their reputation by increasing stake. Highly staked nodes are seen as more reliable for users.

This creates a virtuous cycle - more oracle services leads to greater adoption and more fee opportunities, providing incentives for nodes to keep enhancing the network with better security and newer offerings. The protocol sustains itself on user fees, rather than relying on token speculation or network rewards.

By aligning incentives around providing reliable oracle infrastructure, the LINK token coordinates the development and growth of robust decentralized networks for data/computation provisioning tailored to serve smart contract developers across ecosystems.

Highlights

• September 2017 - Chainlink whitepaper released, detailing a decentralized oracle network design to provide external data to smart contracts.
• June 2019 - Google Cloud integrates Chainlink, adopting oracles to provide BigQuery data on-chain.
• September 2022 - Chainlink and Swift have partnered to test Chainlink's Cross-Chain Interoperability Protocol (CCIP) for communication and token transfers between financial institutions and blockchains.