What is Chainlink?
The team at ChainLink worked out how to ensure information could flow in and out of a blockchain in a manner that remains secure, trustworthy and decentralised. This allows the connection of ‘smart contracts’ on the blockchain with real world data, effectively bridging the gap between the blockchain platform and the outside world.
Smart contracts require trustworthy real-world data that do not pose any harm to the blockchain’s security. ChainLink doesn’t have a single point of failure as it incorporates a network of nodes (computers) to validate the data on its blockchain.
The currency used on the ChainLink platform is called LINK. LINK tokens have a limited supply of one billion. This means once one billion LINK tokens have been mined there will be no more – helping to maintain and hold value.
Why can't smart contracts access real-world data?
Smart contracts are pre-defined, immutable programs that drive the function of various applications that run on the blockchain platform.
A secure money transfer is a good example to demonstrate one of the many uses of a smart contract. A smart contract containing a passcode could be created to transfer funds into your friend’s account if that specific passcode is received. If anyone tampers with the contract, the funds would automatically return to your account meaning the transfer of funds is intrinsically secure.
One of the major limitations of smart contracts that often comes up in discussion is that they can’t access real world data from the outside world, stock prices for example. ChainLink bridges this gap by acting as a ‘data oracle’, providing real-world data to the smart contracts.
How does ChainLink work?
The ChainLink network operates on the principle of ‘data providers’ and ‘data purchasers’.
This ‘Request-Event-Response’ mechanism means when a purchaser requests some data, the request is converted into a ChainLink event. Data providers then bid for the event, followed by a ChainLink algorithm selecting a provider or a group of providers (as defined in the smart contract). The selected provider aggregates data from real-world sources and ChainLink’s reputation system verifies the correctness of the data and aggregates the result. The correct data is fed to the smart contract and the validators are incentivised with LINK tokens.
Security mechanism
Blockchain networks can be compromised if falsified, or if tampered data enters a blockchain environment. ChainLink has a comprehensive three-step security measures to prevent this, including:
- Distribution of data sources
- Distribution of oracles
- Use of trusted hardware.
By prioritising these three principles, ChainLink creates a secure and robust bridge between the blockchain and the real-world data.
ChainLink is trusted by many industry leaders, ChainLink’s partners include Synthetix, SWIFT, Google and many more.
