Ethereum is surging as DeFi is bringing in more liquidity into the decentralized platform. A vital part of this push includes Chainlink, a decentralized oracle network. Chainlink provides a solution for providing information to smart contracts, many of which run on the Ethereum platform. Blockchains are evolving to third and fourth generation networks that introduce new features that extend the capabilities of smart contracts. It is significant to the Ethereum blockchain when it comes to use case.
Decentralized Oracles
Chainlink provides an API for connecting smart contracts to real world data. This information can be processed form databases which feed the data to smart contracts in real time. What separates Chainlink from other oracles is its decentralized BFT (Byzantine Fault Tolerant) network architecture which is not under the control of any entity or organization. This prevents bias, data tampering, manipulation and single points of failure. Downtime can be costly when data is not received in time. This can affect business decisions like when to sell stocks or coins.
One of the main applications for Chainlink is connecting smart contracts to real time price feeds. By design, Chainlink was developed to bring off-chain data sources to on-chain smart contracts. The previous problem with smart contracts is they could not get data on their own. Chainlink provides a type of middleware to connect external data to the smart contract to execute on any blockchain.
LINK Token
To ensure that nodes on the Chainlink network are feeding accurate data to smart contracts, a token is used called LINK. It is an incentive to the oracles who provide data and help secure the network. Bad actors are removed from the system while those who are honest receive the incentives. There are consequences for dishonest nodes who try to tamper with the data. It is a type of reputation system so bad actors will be discouraged from malicious intents on the blockchain. This includes nodes that neglect providing data, falsifying data and attacking other nodes among other things. This provides an open market that is merit-based to provide reliable and trustworthy data.
Blockchain Agnostic
Although built using the Ethereum ERC20 token standard, Chainlink is actually blockchain agnostic. This means that Chainlink was meant to work with other blockchains like Icon and even Hyperledger. Although it is an ERC20 token on the Ethereum main network, it is not exclusive to it. Chainlink’s LINK token can survive on other blockchains through distribution. Blockchains that need real time data can use Chainlink through an API.
Benefits To Ethereum
Prior to Chainlink, oracles could not directly feed data to smart contracts in real time. The data from oracles can be coded by developers, but they could not do it automatically until the Chainlink API came along. A smart contract can get external data feeds from various data sources via Chainlink’s nodes that handle data requests. They also return the results back to the smart contract to fulfill the request.
The importance of Chainlink is the way it provides real world data. For practical application use cases, oracles like Chainlink can provide data as they occur and not from a previous time. Smart contracts that are able to get data in real time to process transactions are more accurate and reliable. This can improve systems that rely on constantly changing data like on monetary exchanges. This means a trader will get the actual value of their trade as it is happening in the market.
The potential is huge for Ethereum. It provides an actual service that has a use case to benefit users. It is also decentralized so there should be no point of failure or downtime. These oracles perform non-stop even if one node is down since there will be others to take its place. This can help extend smart contract capabilities on Ethereum to become truly reliable for business and finance.
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