Building the Bridge – ChainLink (LINK) explained
ChainLink is a decentralized oracle network built on Ethereum. It aims to be a secure blockchain middleware that intends to connect different smart contracts across blockchains. ChainLink’s developers believe that while smart contracts are revolutionary, their underlying protocols make them unable to communicate with external systems effectively. ChainLink can change this by allowing smart contracts to access vital off-chain resources such as data feeds, web APIs, and traditional bank account payments.
The network went live on May 30th, 2019. The company behind this is called “SmartContract.” Back in September 2017, ChainLink raised a whopping $32 million in its ICO and has since become one of the most promising projects in the space. Before we delve deeper into the project, let’s understand the role of an oracle and the importance of interoperability.
Interoperability in the Crypto Ecosystem
Interoperability is defined as the ability of different softwares to effectively communicate and exchange information with each other. Currently, in the crypto ecosystem, we have different coins such as Bitcoin, Ethereum, Litecoin, etc. The problem lies in the fact that it is challenging for these individual entities to communicate with one another. It is tough for bitcoin to know what is going on in Ethereum and vice-versa. This is why the crypto exchanges, which provide a portal between different cryptos, have become so powerful and important. However, therein lies the problem. Exchanges are not a decentralized entity and are incredibly vulnerable.
However, another reason why interoperability becomes desirable is that it is necessary for the mainstream adoption of the blockchain. For blockchains to succeed, they must be able to interact with legacy systems like financial institutions, etc. Because of now, it is extremely hard for the crypto-world and legacy-world to communicate with one another
Plus, the lack of interoperability is even more prevalent when it comes to smart contract functionality. Initially, the community thought that the smart contract ecosystem would be dominated by chain-maximalism, i.e., one dominant chain to host all the smart contracts. However, that’s not a practical solution. We currently live in a world where multiple blockchains are bringing their own unique functionalities into the market. While that’s pretty exciting, the reality is that we have different smart contracts and dApps running on different protocols, and there is no way for them to communicate with each other.
How do we achieve Interoperability?
There are two ways with which projects will be able to achieve interoperability:
In this method, we use a separate third blockchain as a bridge between two different blockchains. This blockchain will maintain a cryptographically secured timestamped ledger of the transactional and messaging activity between the two. Let’s look at the three popular approaches which use this method:
Hub and Spoke: The hub and spoke model is one in which the parent blockchain acts as a central hub to other blockchains (spokes), often called sidechains. This can also help in creating special-purpose bridges to connect with separate state machines outside their ecosystem.
DeFi: Projects like Wanchain and Icon allow interoperability by focusing mainly on building a decentralized exchange of assets.
Bridges: In this method, the blockchain acts as a general-purpose bridge between the to aid communication and messaging.
This method uses off-chain or middleware systems to facilitate interoperability.
ChainLink – Meeting the Team
The main people behind ChainLink are CEO Sergey Nazarov and CTO Steve Ellis. Nazarov is a serial entrepreneur who founded Secure Asset Exchange (an exchange network) and CryptoMail (a decentralized email service) before ChainLink. Ellis used to be a software engineer at Pivotal Labs and worked with Nazarov on Secure Asset Exchange. ChainLink also has an incredible group of advisors. Ari Juels is a professor of Computer Science at Cornell Tech and co-director at IC3, Andrew Miller is an advisor to ZCash and Tezos and Brian Lio is the CEO of Smith+Crown.
ChainLink – How does it actually work?
We have already dabbled a bit into Oracles, but let’s go a little deeper to gain a better understanding of ChainLink. Oracles are agents that find and verify relevant real-world information and submit it to the blockchain to be used in smart contracts. While this is definitely very helpful, the fact is that these oracles are third-party services, which in turn means that you’ll need to trust the data coming through them. This could be problematic due to the following reasons:
So, where is the solution to this problem? ChainLink developers believe that the answer lies in creating a decentralized oracle network for smart contracts to securely interact with resources external to the blockchain, such as cryptographically secure data feeds, as well as facilitating interoperability in between blockchains. ChainLink is currently focussed on creating a decentralized network of oracles that are compatible with the Bitcoin, Ethereum, and Hyperledger blockchains.
ChainLink Network: On-Chain and Off-Chain
The ChainLink Network has a modular architecture that allows it to be upgradeable. It consists of two separate parts – on-chain and off-chain.
Functions performed by ChainLink smart contracts
The ChainLink smart contracts perform the following three functions:
ChainLink – Paving the way for Smart Contracts 3.0
The current lack of interoperability is preventing smart contracts from scaling up and gaining more mainstream adoption. As of right now, the state of the smart contract space is pretty similar to internet pre-TCP/IP protocols. TCP/IP’s cross-communication protocol enabled networks to easily interact with each other all over the world, while HTTP allowed browsers to load data quickly.
ChainLink can do something similar to this by bringing in unprecedented interoperability into this space. At its core, ChainLink is a general-purpose communication standard that can be used to route input/output data messages between all systems securely.
The LINK Token
ChainLink’s native token is called “LINK.” LINK is used by the ChainLink network to reward node operators for the following functions:
If a company wants to avail of ChainLink’s services, they will need to pay the relevant nodes with LINK tokens. The Node Operator will determine the final price. LINK is an ERC-20 token with an additional ERC-223 “transfer and call” functionality of transfer. While ERC-20 enables LINK to have the basic features of an Ethereum-based token, ERC-223 will allow the tokens to be received and processed by contracts within a single transaction.
Whenever a smart contract requests data from ChainLink, every node in the network will submit their data and put up their LINK tokens at stake. If a node is guilty of delivering wrong or corrupt data, its stake will be distributed to all the nodes that produced correct data. This mechanism will prevent any wrong-doing or cheating within the network.
Details of the ICO
As mentioned in the very beginning, the ICO raised 114,285 ETH, or USD $32 million. Before the ICO, there was a private sale wherein the going price was 3120 LINK/ETH (roughly ~$0.09) and came with a 20% bonus. Tokens in the public sale were offered at 2,600 LINK/ETH, or ~US$0.11. A combined total of 350 million LINK tokens were sold during these two sales. After this, an additional 650 million LINK tokens were issued. Of these 650 million:
Interoperability is one of the most significant needs in the crypto space and ChainLink looks to be well on its way to solving this for good. As of press-time, LINK is enjoying some massive bullish sentiment as its price has risen from $2.85 to $4.58 over the last two weeks. ChainLink has the potential to be mass adopted by both the crypto world and the non-crypto world. It really is one of the most promising projects in the space.