What is Chainlink (LINK)? 2019 Overview for Potential Investors
Bitcoin arrived in 2008 as a digital store of value asset. Ethereum arrived in 2015 as a solution for a conflict-free transfer of value with the help of smart contracts. In 2017, ChainLink arrived as the solution to the oracle problem, creating a system where verified real-world data can be connected with smart contracts.
How to Buy Chainlink on Binance – Step-by-step
Chainlink can be bought on most reputable exchanges. As always, we recommend Binance as the best option due to their security measures and significant influence in the industry. At the moment only LINK/BTC, LINK/ETH, and LINK/USDT pairs are available on most exchanges. The only fiat pair available is LINK/EUR on CoinMetro, a reputable European exchange.
Binance provides its services to a wide range of countries, however, they have banned several of them. Check if you can trade on the exchange by visiting Binance’s official website.
Registering is relatively easy and only requires basic KYC (Know-Your-Customer) documentation. You can trade without providing any documentation, but the amount you can deposit and withdraw will be limited. In order to verify your identity, send any form of identification documents on the official website upon registering. Your account will be shortly verified.
Additionally, you can secure your account by using either a 2FA or SMS authentication system. Users can choose not to use either system but are advised to do so in order to protect their assets.
After successfully creating your account, deposit BTC or ETH in your account and visit the trading menu by clicking on ‘Exchange’ in the top left corner. You can pick two interfaces: Basic and Advanced.
If you selected the basic interface, you will encounter a list of trading pairs in the right part of the exchange. Type LINK/BTC in the search bar and select the pair. You will now see buy and sell orders, a trade history, and a graphical representation of the trade volume.
You can buy LINK with Bitcoin by making a limit or a market order.
When creating a limit order, you can set the price you wish to purchase at and the number of LINK tokens you want to purchase. After typing the values, you want, click ‘Buy LINK’ and your order will be filled once someone wants to sell LINK at the rates you set.
Market orders are easier as they allow you to instantly buy LINK. By making a market order, you will specify the number of tokens you want to purchase and the order will get instantly filled at the current price. Note that it takes time for orders to get filled and for transactions to get processed.
Sergey Nazarov, CEO of SmartContract, introduced a solution to the oracle problem by creating ChainLink in 2017, adding the third missing piece in the crypto industry. The project aims to provide a link between blockchain networks and off-chain networks. Traditional solutions which use an oracle provide a centralized service, which is illogical to use with blockchain as they contain a single point of failure.
ChainLink offers the world’s first decentralized oracles that connect on-chain data with off-chain data, such as real-world payments, events, and data. If implemented in enterprise-level use cases, ChainLink would connect financial payments, market data, events, and other information from financial giants such as Swift, PayPal, and Visa with blockchain networks such as Bitcoin or Ethereum.
According to data from CoinMarketCap, ChainLink hit an all-time low of $0.12 in September 2017 and reached an all-time high of $4.54 on June 2019.
Chainlink was launched in June 2017 by SmartContract, a fin-tech company in San Francisco. The cryptocurrency was created in order to solve the oracle problem by connecting smart contracts with real-world data exporters such as web APIs, data feeds, and bank account payments by traditional institutions.
The idea behind smart contracts was created in 1993. Made famous by Nick Szabo and later on by Vitalik Buterin (with the creation of Ethereum), smart contracts are a decentralized way of handling contracts in the digital world, whilst still being enforceable in the real world. When created, smart contracts cannot be altered and are only executed once all requirements set in the contract are fulfilled.
Chainlink was created in order to solve the fundamental issues of smart contracts. While they are located on a blockchain network, smart contracts cannot interact with data from external sources. The project proposes to solve the issue by implementing decentralized oracles.
The first version of the project’s whitepaper, titled ‘ChainLink: A Decentralized Oracle Network’, was released on the 4th September 2017, and co-authored by Steve Ellis, Ari Juels, and Sergey Nazarov. The white paper presents an alternative solution to providing real-world data to blockchain networks by introducing decentralized oracles. While traditional oracle systems provide information in the same way that a centralized system would, decentralized oracles offer a system for relaying tamper-proof information.
Chainlink’s ICO was successfully completed on 19 September 2017 and raised the maximum amount of $32 million. The total supply of LINK tokens is one billion. The team stated that 35% of the tokens will be received by node operators, in order to expand the ecosystem. Another 35% of the tokens have been sold during the ICO, and the rest (30%) are held by the company. Chainlink claims that the tokens they hold will be used to pay employees and develop the project.
A noticeable trend that made the project stand out was the lack of marketing. While the project posted development updates on their blog since May 2017, there weren’t any announcements nor a roadmap for the project. Chainlink made their first marketing move on the 12 November 2018 by releasing an interview with CNBC. Founder and CEO Sergey Nazarov caught the attention of CNBC as the project acquired Town Crier on 1 November 2018. Town Crier is a smart contract and data privacy solution developed by the Cornell University and IC3. The acquirement is seen as a major step for Chainlink, due to the value of the project in the ecosystem.
The next development was made when Sergey Nazarov talked about the project and future of smart contracts with their newest advisor and founder of DocuSign, Tom Gonser. Their fireside chat was held in San Francisco on January 23 2019.
Chainlink continued to market itself as a solution to the oracle problem, announcing partnerships with several cryptocurrency and blockchain projects. At the Consensus 2019 event on 14 May 2019, Sergey Nazarov announced that the project’s mainnet will go online on the 30th May. In his speech, Sergey stated that he aims to ‘create a marketplace for all smart contract inputs and outputs’. Additionally, Sergey announced that he plans to provide one of the most secure blockchain middleware solutions that can support all smart contract networks. The main net successfully launched on the 30th of May with several node operators.
The project’s latest development occurred during the Web3 Summit in August when Chainlink hosted the OracleNode. The event included contests between development teams, panel discussions, and live demos.
The central premise of ChainLink is to provide a connection between on-chain and off-chain networks. For now, the project is based on the Ethereum network, with its token ‘Link’ categorized as an ERC677 token, which slightly deviates from the known ERC20 token standard for Ethereum-based projects. In the future, Link will be modified in order to support all major smart contract networks.
According to the whitepaper, different aspects of the project can be continually upgraded, and replaced in the future if a technologically-superior process arrives. Likewise, ChainLink will act as a module that can be implemented with ease in most networks.
As the project deals with both blockchain networks and real-world data, the technology behind ChainLink is divided into two equally important parts: On-Chain architecture and Off-Chain architecture.
In this project, nodes act as a center for relaying real-world information to smart contracts made on the blockchain. Smart contracts can either request data (how many transactions did SWIFT process today?) or create queries (was Microsoft’s data center in Germany online today?).
Within the request the smart contract created, ChainLink creates three additional contracts:
- Reputation contract (records information on the performance of oracles)
- Order-matching contract (detects a planned service level agreement (SLA), registers the SLA information, and collects offers from oracles)
- Aggregating contract (collects data provided by multiple oracles, calculates the total value, and then sends the value to the smart contract)
An important additional step consists of the oracle providers receiving performance metrics, based on how accurate the information they provided was. By doing so, oracle providers who fare well can be rewarded with Link tokens, while those who sent inaccurate data lose the tokens they have staked.
On-chain progress continues with the following steps:
- Oracle selection
- Data reporting
- Result aggregation
When an entity creates a smart contract, the contract includes additional information concerning the proposed SLA. The agreement contains information such as the number of oracles who need to verify and relay the information, and the query parameters. If needed, the entity can also request a specified reputation level (in the case that the entity requires highly accurate information for enterprise-level use).
A variety of platforms (not located on the blockchain) will provide access to a list of oracle nodes that provide real-world information. On these platforms, entities and individuals who create smart contracts can search for oracles based on their reputation and other performance metrics.
According to the whitepaper, an official ChainLink platform for listing oracle providers will be created. The platform will collect all information on previous oracle contracts and the list of providers will be pulled from a blockchain network.
Once the SLA parameters have successfully been created, oracle providers are free to bid for the contract. Based on the requirements that the SLA created (number of oracles, reputation level, etc.), a selected number of oracles that meet the requirements will be tasked to provide information to the service requester. However, oracles can only be selected once the bidding window is over.
Following the oracle selection process, data providers will collect information from nodes in the real world and report it back to the blockchain network.
Upon completing the data reporting process, the information is sent to the aggregating contract. After accepting all of the information, the contract will calculate a ‘weighted’ answer. When the process is completed, the aggregated contract sends performance metrics to the reputation contract. The process is concluded by sending the ‘weighted’ answer to the smart contract.
Outside of blockchain networks, ChainLink nodes named ‘Oracles’ operate while being connected to the Ethereum network. The project aims to connect itself to most of the leading smart-contract networks. When an entity creates a request or a query, the oracles will aggregate all results and send back a weighted response to the smart contract requester.
Nodes work based on the open-source core implementation, which processes all interactions within the blockchain and off-chain data.
Oracles can provide more information by using external adapters (software extensions). Even at the early period of publishing the whitepaper, ChainLink already had several working oracles for both public and private blockchains.
ChainLink Core is the name of the software that oracles use when interacting with blockchain networks, handling request, and working with external services.
The workflow of oracles goes as follows:
- Nodes receive assignments
- Each assignment holds individual jobs known as ‘subtasks’
- Nodes perform subtasks and send the results to the next subtask
- A final result is collected
ChainLink Core by default has several types of subtasks. They include JSON parsing, HTTP requests, and conversion of various formats to blockchain formats.
As mentioned before, ChainLink Core software has a set of default tasks which node operators can perform. However, additional subtasks can be created by building ‘adapters’. Developing adapters is easy as programmers can create them using all sorts of programming languages.
Compared to Ethereum where blockchain developers have to learn Solidity first before creating smart contracts, individuals who program external adapters only require to add an intermediate API so that their code gets successfully processed.
While the team expects that a majority of external adapters will be open-sourced, in order to improve compatibility and ensure a transparent process, a schema for future developers is already available.
At the moment, the workflow of the schema is based on the JSON schema, which contains the required inputs for adapters and in what format they should be. For the output of the schema, every adapter will have a custom format based on its function.
The token economy functions with the help of Link tokens, which serve as collateral when oracles provide their services. Oracles (node operators) can only be paid with Link tokens and the only currency they can stake (so that invaluable nodes are punished) is Link.
While some hold the view that the project can function properly even without the token, the ChainLink team states that the token is essential and that its value is based on the number of oracles that work for off-blockchain services (such as enterprises) and the value of their work.
For example, in the case that a financial institution uses ChainLink nodes to provide off-chain data to a blockchain network, the institution will probably hire oracles that provide more precise data. Naturally, a higher-quality of work would be paid far more, and the number of staked Link would be increased as well. In this case, the value of Link tokens would be far higher. Accordingly, higher network activity would lead to higher market valuation.
With the creation of a contract between nodes and entities, the requested amount of Link tokens are locked up (staked) in the contract. In essence, the staked tokens are out of circulation, lowering the supply of available tokens and technically increasing their value.
Upon the creation of a smart contract, the creator sets the price he is willing to retrieve real-world data to the blockchain. Oracles then bid for the contract and pay a penalty fee if the creator decided to include the option.
Oracles that didn’t win the bid can withdraw the tokens they locked up when bidding.
Oracles that successfully won the bid get rewarded with additional link after the smart contract accepted the retrieved data. In the case that the contract included a penalty fee (which will most likely be the case), the oracle can withdraw the fee as well.
Oracles can be paid by completing whole projects once, or by routinely finishing milestones.
For example, if an enterprise seeks to check whether one of their databases around the world is online, they can send a query and the oracle will be rewarded with the total amount for the assignment.
On the other hand, if a smart contract requires of the oracle to check the price of ETH for the next 60 days, the oracle will be rewarded daily with a percentual amount of the total assignment value.
The Link token is not an ERC20 token, but a variety of it. According to the team, Link is categorized as an ERC677 token. The reason behind this is the additional functionality provided, with better ‘transfer and call’ options that allow tokens to be processed by smart contracts in just one transaction.
The total supply of tokens is capped at 1 billion. The ICO ended on 19 September 2017 and raised the maximum amount of $32 million. The team announced that 35% of the tokens were sold on the public token sale and that another 35% will go to node operators. The last 30% is held by the company and will be used to pay employees and fund further development.
Future Plans/Developments for Chainlink (LINK)
While the project has only recently started ‘opening up’ to the rest of the world, the Chainlink team is still keen on keeping announcements hidden. At the time of writing, there is still no roadmap present by the team.
Some hold the view that Chainlink’s secrecy relies on the fact that Sergey Nazarov wants to decrease the risk of having LINK categorized as a virtual asset by the SEC. In this case, the project would face significant hurdles in further development. The crypto community actively fears that the SEC may at one point in time decide to ban a wide range of less-developed cryptocurrencies in the US, a move which the SEC would take to protect US investors.
However, with the explanation of what Chainlink offers to the crypto and blockchain industry, we can expect significant future developments for the project. If widespread blockchain adoption would occur, major financial institutions would require fully functional smart contracts, something that cannot be achieved without having a solution for external data in place.
Albeit strange, Chainlink has a controversial community, which can only be compared to Ripple’s ‘XRP army’. The project initially had a small but powerful followership spread on various internet forums such as 4chan and Reddit. As there was a lack of announcements or news in general about the project, the community collected various information that could potentially be connected to the project.
Given the fact that, if adopted, the project would capture an entirely new market both on-chain and off-chain, speculators invested both their time and money into the project. According to some views, Chainlink has already established partnerships with major financial institutions and IT giants. While perhaps a coincidence, some have successfully predicted a partnership between Google and Chainlink, an event which drastically increased the value of the project.
In general, the project acquired a lot of partnerships with both minor and major cryptocurrency/blockchain projects in 2018 and 2019. A list of confirmed partnerships includes Oracle, Google Cloud, Matic, Harmony, Wanchain, Kaleido, Web3 and several more.
In terms of interacting with development teams, Chainlink held several contests where developers competed for rewards. In September 2018, Chainlink hosted a hackathon event in San Francisco where developers were rewarded for successfully implementing Chainlink on the Ethereum blockchain.
The team has also had a hackathon event at the Web3 Summit this year. The event comprised out of contests, live demos, and workshops. The increase in interaction between Chainlink and other community developers comes at a time when the project is actively seeking to hire employees for both technical and marketing departments.
What is the purpose of the Link token?
Entities and individuals who require real-world data on their smart contracts reward nodes for their data. Link is used for paying nodes and can also serve as a collateral asset by service providers. The only currency that can be used within the ecosystem is Link.
Can I store Link on wallets that support ERC-20 tokens?
Link tokens can be stored on any wallet that supports ERC20 tokens, despite the fact that Link is an ERC677 token.
Can I mine Link tokens?
You cannot mine Link as it is a utility token which is premined. However, you can earn additional Link by staking it as an oracle service provider.
Can I expect a token swap in the future?
The project’s mainnet will continue to work on the Ethereum mainnet. As the ChainLink team plans on integrating its product into different blockchain networks, the team will release additional information on how to transfer tokens between blockchains.
What kind of hardware do I need to run a Chainlink node?
Hardware requirements for running a node are not strict. You can even run a node on a Raspberry Pi. However, the team notes that you may need to upgrade your hardware in the case that the requirements for running Ethereum clients increase in the future.
Can I run a node without owning any Link?
Nodes can be set up and run without any LINK tokens. You probably won’t be able to get assignments as most data requester will need you to deposit a penalty fee if you send incorrect data or don’t finish the assignment successfully.