Erik Weijers, 2 months ago
How can we trust data if we don't want to place our trust in a single authority? And how can these data be accessed by on-chain applications? Chainlink was invented to solve these problems. What Bitcoin does for money, this blockchain network wants to achieve for data.
Chainlink was created in September 2017 and officially launched in May 2019. It is a so-called decentralized oracle network.
Oracles act as the middlemen between online sources of data and on-chain smart contracts, allowing the latter to securely access off-chain data feeds.
Why? Because it's an inherent limitation of blockchain networks how to connect to external off-chain data resources. Chainlink provides a wide range of services to smart contracts, most prominently price feeds: in other words, financial market data.
What role does Chainlink play? As mentioned, oracles act like messengers that collect and deliver data to the enclosed world of blockchain. Data can come from sources like websites, APIs, or other data feeds. Smart contracts can then execute based on these data.
Smart contracts are self-executing agreements with the terms of the contract directly written into code. They run on blockchain networks, providing transparency, security, and automation. When the conditions specified in the smart contract are met, the contract is automatically executed without the need for intermediaries. This brings down costs, time, and potential for error.
Chainlink's use and price increased spectacularly starting around 'DeFi summer' in 2020. Chainlink was - and still is - used to feed price data to decentralized applications where people swapped coins.
With new product Chainlink Functions, launched in 2023, Chainlink hopes to broaden the use cases of its oracle network. For example, in the field of insurance that pays out in case of certain weather events.
Or to automate paying musicians based on stream counts. Chainlink would in that case bridge the gap between a smart contract and music stream data. A record label and a music artist could use a smart contract to define the terms of their contract. Chainlink would then connect to a music data API and calculate the amount to be paid. This payment could also happen on-chain, for example in USDC. There are of course countless use cases in an ever larger online economy, where content gets a price!
Chainlink is built on Ethereum. It has a native token, called LINK. LINK allows token transfers to contain a data payload. LINK is used to pay node operators for retrieving data for smart contracts.
The LINK token standard is closely related to Ethereum's ERC-20 token standard. This means that any wallet that handles ERC-20 tokens - basically every crypto wallet - can store LINK tokens.
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