ChainLink has been getting quite a bit of attention lately. So much so that LINK has risen to a market cap of nearly $1 billion in market cap.

The catalyst for these gains was the launch of Chainlink on the Ethereum mainnet in May 2019 and a Coinbase listing. Essentially, the project’s goal is to create a decentralized oracle service. If they’re successful it could change smart contract usage and effectiveness forever.

In this Chainlink review, we will take a deep dive on the project including the technology, adoption, use cases & LINK price prospects.

Need for Oracles

When smart contracts are mentioned nearly everyone thinks of Ethereum. And that’s because when Ethereum was launched back in 2015 it contained something that took blockchain technology to the next level.

The smart contracts of Ethereum meant that blockchain technology could be far more than just a means for conducting financial transactions. Ethereum’s smart contracts expanded the utility of blockchain massively.

There was one problem with Ethereum smart contracts however, and that’s the fact that they only work with data on their own blockchain. While that still leaves them as a very useful tool, they aren’t nearly as useful as they could be. Creating a way to include data from outside the chain would give smart contracts an immense boost in the potential use cases.

Chainlink connection to Smart Contracts
How chainlink smart contracts will function. Source: Chainlink website

The founders of Chainlink saw this, and they moved to fill the gap. ChainLink is being created as a way to use oracle’s to pull data from off-chain sources. ChainLink oracles will be able to use data pools, application program interfaces (APIs) and other real world sources. It opens up the possibility for smart contracts to use any data source at all, no matter what the source is.

ChainLink will be extremely helpful to projects that need offchain data to be really useful. By giving blockchains access to traditional data sets, ChainLink seeks to be the bridge between traditional data and the future of blockchain technology.

With those basics set, let’s have a more detailed look at what ChainLink is being developed for, and how it can change the blockchain space.

How ChainLink Works

The main function of ChainLink is to create a bridge between on-chain resources and off-chain resources. This means there are two primary components in the ChainLink architecture – an on-chain infrastructure and an off-chain infrastructure. Let’s see how both work.

On-Chain Functions

The on-chain smart contracts are the first part of ChainLink’s architecture. Included in the smart contracts are oracles which are created to process user data requests.

These oracles will take any user requests for off-chain data that are submitted to the network using a requesting contract and process them, sending them to the appropriate smart contract to be matched with an oracle that can then provide the needed off-chain data. There are three types of contracts that can help with matching: the reputation contract, the order-matching contract, and the aggregating contract.

Chainlink connection to Smart Contracts
Behavior of an on-chain Oracle as defined by Chainlink. Source: Chainlink Whitepaper

The reputation contract ensures that the oracle provider is reliable and trustworthy. If it is, the request is passed to the order matching contract, which works to pass the requesting contract to an appropriate oracle based on the service level being requested, and the bids from the oracles. Finally, the aggregating oracle collects data from the selected oracles and delivers the best result to the requesting contract.

Off-Chain Functions

Off-chain components are the other part of the ChainLink architecture. These are oracle nodes that exist off-chain, but are connected to the Ethereum network. I say Ethereum network here because currently ChainLink is only capable of interfacing with Ethereum smart contracts, but in the future it is planned to work with many different networks and smart contracts. The bulk of the work is done by these off-chain oracles, as they collect most of the data being requested.

All of the data collected is processed through ChainLink Core, which is the software that connects the ChainLink blockchain with off-chain data sources. ChainLink Core is responsible for processing data and passing it to the on-chain oracle.

Chainlink workflow overview
Overview of the Chainlink workflow

All of this work by the off-chain nodes isn’t done as charity. These nodes expect to receive payment for the data collection and transmission. And they are paid, in LINK tokens.

There’s a secondary function of off-chain nodes that make them quite useful to developers. The off-chain nodes allow for the integration of external adapters, which are like decentralized applications (dApps) on the Ethereum network. External adapters are written by developers to perform subtasks within the external nodes. This makes data collection and processing more efficient.

Oracle and Source Distribution

ChainLink’s decentralized nature and difference from other oracle protocols are shown by the concepts of oracle distribution and source distribution used by ChainLink. This decentralization helps ChainLink avoid centralization and other security issues.

Source distribution and oracle distribution are the keys to the security and decentralization of the oracle network. Source distribution is the concept that causes oracles to pull their data from a variety of sources. This helps them keep a good network reputation. And oracle distribution is the concept that has data requests contracted to several oracles to maintain decentralization.

Chainlink distributed requests
Requests are distributed across both oracles and data sources

The above figure shows the two level distribution on the Chainlink network. However, it helps to take a look at a practical example.

Weather Application

A company creates a user called the Sunshine Day Weather App. The user requires up-to-the minute weather data, and to get it there’s a request submitted to ChainLink. The matching oracle locates three different oracles to find and transmit the needed data, following the oracle distribution methodology to maintain a secure network.

Because the network also requires source distribution each of the oracles will draw their data from different sources. We’ll call the oracles X,Y and Z. Oracle X gets its data from Accuweather and Wunderground.

Oracle Y gets its data from the National Climatic Data Center and Open Weather Map, while Oracle Z gets its data from the National Weather Service and the National Oceanic and Atmosphere Administration.

With this oracle and source distribution the network remains totally decentralized, and Sunshine Day Weather receives aggregated data from three reputable oracles who all receive their data from different sources.

One other benefit of this system is that oracles are incentivized to remain honest, since their reported data will be compared with the data from other oracles. If fraudulent data is reported the oracle would see its reputation sink, and could face other network imposed penalties.

Trusted Execution Environments

Trusted Execution Environments, or TEEs for oracles, were added to Chainlink in late 2018 when Town Crier was acquired by Chainlink.

Combining TEEs with decentralized computations gives Chainlink an added layer of security for individual node operators. TEEs confer the benefit of allowing all computations performed by a node private, even from the node operator themselves.

This increases the overall reliability of the oracle network because it prevents any node from tampering with any of the computations performed by them.

ChainLink Use Cases

Quite possibly the biggest positive development so far at ChainLink is its partnership with the SWIFT banking transaction network. Let’s face it, SWIFT is one of the largest global financial networks, and success with them could lead to many other partnerships within the finance industry from banks to payment processors to insurance outfits.

SWIFT Smart Contracts
SWIFT Smart Oracles acting as “Middleware”. Source: smartcontract

While SWIFT isn’t flat out using ChainLink, it is developing the SWIFT Smart Oracle with the help of ChainLink, and that leaves it possible for integrations between the two.

Another positive is that ChainLink has little competition, and even those that are working on blockchain oracle development are far behind Chainlink.

The LINK token was under pressure throughout 2018, but that’s true of the entire cryptocurrency market. After hitting a bottom in June 2018 it made a nice recovery and was powered even higher beginning in April 2019 as traders and investors learned that Chainlink was launching on the Ethereum mainnet. Since then the price is up roughly 400%

ChainLink Partnerships

The partnerships that ChainLink has forged are a part of its strength as well. The SWIFT partnership is the largest, but it isn’t the only solid partnership already formed by ChainLink.

Chainlink Partners
Requests are distributed across both oracles and data sources

It’s interesting, because it seems the team behind ChainLink has focused on building partnerships rather than on marketing, and that’s a large part of the reason the coin goes unnoticed by most cryptocurrency enthusiasts. The following are the largest ChainLink partnerships to date:

  • SWIFT: The massive interbank communications network;
  • Zeppelin OS: An operating system that was developed specifically for creating smart contracts;
  • Request Network: An exchange platform that aims to be the standard for exchanging fiat and cryptocurrencies;
  • Signal Capital: A London based private asset firm.

Chainlink has been extremely active in adding new partners and node operators since the launch on the Ethereum mainnet. It seems as if hardly a day or two goes by without a new announcement of a partner joining to run a Chainlink node.

All of this has been extremely positive for Chainlink, increasing the adoption of the blockchain even as the team continues focusing on development rather than marketing. It appears that Chainlink markets itself, and new partners come looking for Chainlink rather than the other way around.

That’s a good sign for any type of business…

Chainlink Community

Chainlink is fairly unique among blockchain projects in a second way, and that’s how it has handled marketing. While many projects have focused heavily on maintaining complete transparency and flow of information to users, Chainlink has instead focused on the business of creating partnerships.

The team does keep users informed, but the flow of information is often sparse and spread out over time.

You can see this in the social channels of the project. On Twitter, Chainlink has 36,500 followers, which is fairly low for a project that’s been around as long as Chainlink. Tweets can be sporadic too, with several days spread between tweets at times.

Chainlink Socials
User Stats on Telegram & Reddit

One of the largest communities on Chainlink has to be their Telegram channel, which has over 12,000 members. This is where you can go to get the most up-to-date information on Chainlink development.

On Reddit, which is considered one of the top hangouts for cryptocurrency enthusiasts, the Chainlink subreddit has just over 11,000 followers.

Posts are made daily and there are a good number of comments on each post, but the conversations are almost totally from users, with little involvement from the Chainlink team.

LINK Token

The LINK token rallied strongly right after its ICO and by October 2017 it reached $0.47. After dropping from that high it rallied again in December 2017 and January 2018 along with the rest of the cryptocurrency markets, hitting a high of $1.35 in January 2018.

It dropped in 2018 along with the rest of the market, hitting a low of $0.1647 at the end of June, but by September 18, 2018 it recovered and was trading at $0.2872 and was the 50th largest coin by market cap, with a market cap of $100,530,182.

LINK Price Performance
LINK Price Performance. Image via CMC

From September 2018 through May 2019 the price of LINK remained roughly between $0.25 and $0.50 as the crypto markets began a slow recovery. May 2019 is when the price really took off as investors were encouraged by the launch of Chainlink on the Ethereum mainnet.

On May 1, 2019 LINK was trading at $0.476462 and by June 29, 2019 it hit its all-time high of $4.54. It pulled back to the $1.60 area by September, but has been climbing steadily since and as of October 27, 2019 it is trading at $2.72.

Buying & Storing LINK

In the past, if you wanted to purchase LINK yourself you needed to do so with BTC or ETH as there were no fiat purchases available for the token. However, it was recently added on Coinbase, and can now be purchased there using USD.

Binance is still the best exchange to purchase LINK from though as the bulk of the trading volume is on that exchange. You can also buy at Huobi, OKEx, and Mercatox as well as dozens of other small and medium-sized exchanges.

Binance LINK
Register at Binance and Buy LINK Tokens

In terms of LINK liquidity, it is pretty well spread out across all of the exchanges where it is listed. This means that you are not dependent on the liquidity from any single exchange which further reduces the risk.

Looking at the individual orders books on the likes of Binance, they are quite deep and there is a reasonable level of turnover. This means that you would be able to place large block orders without much price slippage.

Once you have your LINK tokens you will want to keep them in an offline wallet. Give that these are ERC20 tokens any wallet that supports Ethereum will do. These include wallets such as MetaMask or MyEtherWallet.

Chainlink Development

So how is the core development of Chainlink looking? Well, the best way to get a sense of this is to look into their public GitHub.

By observing the total commits in the repositories, you can get a rough sense of general development output. Below are the total commits to the core repository over the past year.

Chainlink GitHub
Total Commits to Core Repo in Past 12 months

As you can see there has been a pretty regular stream of updates over the year so things are still active. Compared to other projects in the space, Chainlink comes in at about 60 in terms of total commits.

So while the development output is not as extensive as some of the other projects that I have seen, it is still reasonable. If you want to keep up to date with these developments then you can head on over to their official Gitter channel.

Chainlink’s Future

ChainLink has not released a formal roadmap, so we can’t be positive what the next developments will be.

Actually, lack of communication from the development team, along with a lack of marketing for the project, has been one of the biggest frustrations in the ChainLink community.

It’s well known that ChainLink founder Sergey Nazarov prefers to work behind the scenes, and is not one for public appearances.

Chainlink Sergey Nazarov
Chainlink announcement with little fanfair. Image via Twitter

That has been improved over the past year however, with Chainlink increasing the amount of information it provides to the user community.

It could still do better though. Currently the team posts to Twitter fairly frequently, but the blog is updated pretty infrequently. The best source of information is Telegram.

The value Chainlink brings us is in the ability to provide provably reliable oracles that are able to be combined in an efficient and secure manner into oracle networks.

The ongoing work of Chainlink is to achieve this goal by allowing individual users to select individual nodes of the highest quality and then aggregate the nodes into oracle networks that are Sybil attack resistant. Then Chainlink provides the security measures to ensure these networks can function as reliable smart contract triggers.

One method is used by the Chainlink network to allow its users to select the highest quality individual nodes is by providing the necessary data that shows how well the nodes are currently fulfilling requests, and how well they have fulfilled requests in the past.

Chainlink Explorer

The Chainlink Explorer is the means to make sure all of this data is available to users. It was launched in May 2019 along with the launch on the Ethereum mainnet and is designed to provide the insight into the function of Chainlink nodes in two primary dimensions:

  1. Detailed information regarding each node’s fulfillment of user requests. This includes both the off-chain activity and the on-chain results, and it gives the smart contract developers critical data regarding how well nodes and oracle networks are performing.
  2. Reliability and speed data for every node connected to the explorer are aggregated for both on-chain and off-chain activity. This allows the Chainlink developers to begin to understand how a reputation system would work within the Chainlink network, with the hypothesis being derived from real transaction data.

The Chainlink team is planning on expanding the capabilities of the explorer to provide deeper levels of insight regarding the operation of each individual node. This will include various metrics about node reliability and speed, which dApps and contracts have used a particular node, and data about each node’s fulfillment of commitments.

Chainlink Explorer
User Interface of Chainlink Explorer. Image via Chainlink

As real transactions increase on the mainnet the team expects to have an increased amount of verifiable proof for each oracle’s reliability, giving users and increased insight into oracle performance.

Once the team has been able to create a data-driven framework for users to choose node operators, they will be able to divide the nodes into oracle networks that achieve decentralization.

In order to reach this level, the team is working on levels of aggregation across oracle networks, looking to provide the needed security and efficiency expected from such oracle networks.

Threshold Signatures

One step in this direction was a new approach to the utilization of threshold signatures on Chainlink, which will allow the team to create oracle networks that can contain thousands of nodes.

The main benefit of this threshold signature setup is that it allows oracles to have their signatures verified on-chain which provides added security and it does so in the most efficient manner.

Making large oracle networks efficient is a desirable goal because it will be a preferred method for offering reliable inputs for high-value smart contracts.

Smart Contract Inputs

Besides creating efficient, secure and highly decentralized oracle networks, Chainlink is also trying to become the largest source of smart contract inputs and outputs.

One of the goals of achieving this state is to make smart contract development as rapid as web application development is today. Similar to the way web developers are able to draw from a large pool of APIs and data streams, smart contract developers will also be able to draw from a collection of inputs and outputs, if the Chainlink team is successful in achieving this goal.

Chainlink Smart Contract
End-to-End Smart Contract Reliability. Image via Chainlink

This would make Chainlink the go-to blockchain for developers and smart contracts to find pre-made inputs and outputs that can rapidly be implemented in dApps or that can securely and easily accept specific input/output requests.

Since Chainlink is far ahead of any other oracle network of its kind, achieving these goals could cement Chainlink’s place within smart contract development and execution.

Conclusion

The ChainLink project isn’t the easiest to come to grips with, but once you do it’s easy to see how it can benefit the blockchain ecosystem massively going forward.

Blockchains by themselves are very limited, and they require oracles to unlock their full potential. Because ChainLink is one of the few projects working on oracle development they could easily become an industry leader for years to come.

The lack of marketing has caused concern among the ChainLink community, but that is offset by the partnerships being forged by the ChainLink team. Honestly, if they are successful with SWIFT they may not need marketing and will become a billion-dollar whale within the financial services community regardless.

Featured Image via Shutterstock

Disclaimer: These are the writer’s opinions and should not be considered investment advice. Readers should do their own research.

Posted by Steve Walters

Steve has been writing for the financial markets for the past 7 years and during that time has developed a growing passion for cryptocurrencies.