Chainlink Token: Linking On-Chain and Off-Chain

Chainlink is considered the most established decentralized oracle network. As an ecosystem housing several decentralized oracle networks running simultaneously. As a decentralized oracle service built on Ethereum, Chainlink has the power to support the development of blockchain solutions for both traditional businesses and enterprises.

What is Chainlink?

In the emergence of multiple blockchain projects, Chainlink is genuinely a standout. As a decentralized oracle service built on Ethereum, Chainlink has the power to support the development of blockchain solutions for both traditional businesses and enterprises.

Chainlink was the product of an effort to make smart contracts more accessible and in sync with the outside world. Although the smart contract is considered the brainchild of Ethereum, Chainlink goes a few steps further as it aims to incorporate smart contracts beyond the blockchain and into the real world.

With this in mind, users of smart contracts can retrieve data from off-chain APIs, data pools, and other resources using the oracles in the network, which you can then incorporate into the blockchain.

Simply put, Chainlink links the blockchain ecosystem to external world applications by connecting to the blockchain on one end and merging with an API on the other. Chainlink can also limit trust in a single party and work flawlessly in a decentralized infrastructure as the base of its solution is built on oracles.

Value Model

Functioning as a decentralized oracle network aiming to link on-chain smart contracts and off-chain businesses and data, it may come as no surprise that Chainlink rests on two architectural components: on-chain infrastructure and off-chain infrastructure.

As highlighted in its White Paper the vision for Chainlink is to “securely combining on-chain and off-chain components in smart contracts. We refer to contracts realizing this idea as hybrid smart contracts or hybrid contracts.”

Why is this vision important? As highlighted in the same White Paper: 

Blockchains are and will continue to play two critical roles in decentralized-service ecosystems: They are both the loci where cryptocurrency ownership is represented and robust anchors for decentralized services. Smart contracts must therefore be represented or executed on chain, but their on-chain capabilities are severely limited. Purely on-chain contract code is slow, expensive, and insular, unable to benefit from real-world data and a variety of functionalities that are inherently unachievable on chain, including various forms of confidential computation, generation of (pseudo)randomness secure against miner / validator manipulation, etc.

In short, bringing all on-chain means also killing – as of now – the potential of what applications can do. Instead, by combining on-chain and off-chain capabilities Chainlink focuses on improving widely the capabilities of what can be done with smart contracts.

The on-chain infrastructure encompasses all on-chain contracts, called Oracle contracts, spread all over Ethereum’s blockchain. These Oracle contracts allow users to access off-chain data by processing their data requests and matching them with existing oracles deemed appropriate for the application.

On the other hand, the off-chain infrastructure comprises oracle nodes that connect to the Ethereum network. These oracle nodes are responsible for the collection of the user-requested data from off-chain resources. After its collection, the data will then be processed through the software supporting the interaction between the off-chain infrastructure and the blockchain, called the ChainLink Core.

With Chainlink’s native ERC-20 token called LINK, off-chain oracle operators get incentivized for their valued contribution to network harvesting and data transmission success.

Blockchain Model

As established, Chainlink is more than a single oracle network, but an entire ecosystem accommodating many decentralized oracle networks. As such, Chainlink is capable of providing an abundance of oracle services without having to depend on other oracle networks, including:

  • A Pre-Built Decentralized Price Feeds capable of obtaining asset prices with full market coverage when linked into a DeFi application;
  • A Verifiable Random Function (VRF) enabling easy, on-chain access to a fair and secure Random Number Generator (RNG);
  • Modular External Adapters allowing its connection to any off-chain resources like premium data providers, web APIs, IoT sensors, bank payments, enterprise backends, other blockchains, and many more;
  • Fair Sequencing Services that ensures suitable transaction ordering;
  • DECO for the preservation of TLS web session data privacy;
  • Arbitrum Rollups that provide scalable off-chain solidity computation, among many other oracle services.

As explained in its White Paper “Decentralized Oracle Networks are designed to enhance and extend the capabilities of smart contracts on a target blockchain or main chain through functions that are not available natively.”

Image Source: Chainlink White Paper

As you can see from the image above the Decentralized Oracle Network is able to execute off-chain data, by bringing it into smart contracts, thus making them executable. This is critical, as these networks help bootstrap blockchain protocols that otherwise might not natively support certain applications, and also decongest the main network

Among the key design principles behind Chainlink there are Hybrid smart contracts (combining on-chain and off-chain components), Abstracting away complexity (perhaps by simplifying the interface for developers that don’t have to deal with specific protocols’ rules), Scaling (thus helping various blockchain protocols to support more volume and more use cases), Confidentiality, Order-fairness for transactions (preventing for instance attacks un users’ transactions that are aimed at increasing fees), Trust minimization, and Incentive-based (crypto economic) security.   

Another important element for Chainlink as it combines on and off-chain is the proof of reserves, which helps to build a “cross-chain service.”

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Read Also:  Proof-of-stakeProof-of-workBitcoinDogecoinEthereumBlockchainBATMoneroRippleLitecoinStellarDogecoinBitcoin CashFilecoin, TRON Blockchain.

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Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"