What is Chainlink?
Chainlink (Link) is a decentralized distributed oracle network that allows data outside the chain to connect to the blockchain and vice versa. Similarly, it makes it possible to connect different chains. Thus, Chainlink manages to compensate for the shortcomings of many blockchains and plays a vital role in connecting them to external (off-chain) systems or each other. In this way, working as a middleware, Chainlink manages to solve the problem of data transfer.
For this reason, Chainlink is conceived as a "Decentralized Distributed Oracle," as it provides a secure, reliable, and decentralized solution for data transmission between the natural world and the digital world. The oracle in the blockchain is a service that allows connecting intelligent contracts within the blockchain with external data sources. It does not refer to the data source itself but to the layer that validates the external data source and links the information.
What is Chainlink (Link)?
Chainlink (Link) is a decentralized node network platform that serves as middleware (intermediate processing). It also has its virtual currency (token), which is exchanged on the same platform. It should be noted that its primary function is to connect the blockchain network with the off-chain system. Therefore, we can say that it is the first middleware created to securely monitor payments, market data, and financial systems such as web applications, PayPal, APIs, and bank accounts with Bitcoin, Ethereum, and HyperLedger intelligent contracts.
Chainlink raises the issue of connectivity and interoperability related to smart contracts. Chainlink refers to mechanisms that automatically execute contracts on the blockchain by creating new software that connects the blockchain and external data. For its part, the Link cryptocurrency is a token based on the Ethereum blockchain, specifically on the ERC-20 and ERC-677 protocols. It is recognized as a representative cryptocurrency and used to pay for Oracle services on the network.
How does Chainlink (Link) work?
The principle of operation of Chainlink (Link) is based on a network of nodes called Chainlink Nodes (CN). Its function is to feed the smart contracts that operate within the Ethereum network with the data obtained from one or more events in the real world. Chainlink seeks to get a consensus on the information obtained from many different nodes to fulfill this function. It is assumed as valid the answer indicated by most of them as the most accepted.
In addition, Chainlink uses the incentive policy as a data protection measure. In this way, it seeks to avoid malicious manipulations or bad practices with the data obtained. Thus, an economic compensation is established as an incentive for the correct answers of the node operators. The more reliable and accurate the information on the data obtained, the more valuable the economic compensation will be. In the opposite case, a kind of sanction is contemplated for the node involved.
What is its future in the cryptocurrency market?
It is expected that Chainlink (Link) will continue to grow steadily because, thanks to its excellent performance have been adopted by major projects and companies of international scope, among which we can mention:
- Google (the most prominent American IT company in the world).
- Oracle (the second-largest software development company in the world after Microsoft in the USA).
- SWIFT (Society for International Banking Communications).
- BSN (China's state-owned blockchain services network).
On the other hand, the development of virtual currencies and blockchain is always active and constantly evolving, which results in the market capitalization ranking changing rapidly every day. However, Chainlink (Link) has established a solid position in the market by having an exceptional performance called "Distributed Oracle." In addition, Chainlink's prices are also expected to grow steadily, as classes already have been acquired are unlikely to fluctuate significantly.
How does it relate to Ethereum?
Possibly the relationship between Chainlink (Link) and Ethereum is more than evident at this point. However, in case there is still any doubt, let's take a closer look. First of all, we must remember that Chainlink is a project that works with a token (Link) based on ERC-20 and ERC-677 protocols, which means it runs entirely on the Ethereum blockchain. Link tokens are digital assets used to pay for services on the network.
Link is a type of cryptocurrency that is based on Ethereum. And it can be bought and sold for fiat currency or other digital currencies. In addition, its operation depends on a network of nodes (NC). These nodes are responsible for feeding data obtained from real-world events into the Smart contracts within the Ethereum network. Intelligent contracts are pre-specified agreements on the Ethereum blockchain, which evaluate information and are automatically executed when certain conditions are met.
Advantages of Chainlink (Link)
Among the many advantages that the implementation of Chainlink (Link) offers to its users, we can mention:
- Its protocol was developed as middleware, allowing it to access intelligent contracts and eliminate their failures and external access systems.
- It serves as a decentralized oracle.
- The system has been built to operate based on the accuracy of the data obtained, its security, and its complete decentralization.
- Thanks to its extensible structure, it is possible to access and provide almost any kind of information.
- It allows a rapid massification of the network of nodes thanks to the simplicity and ease of installing its Chainlink nodes.
- Its decentralized structure allows anyone with a node within the network to provide the services requested by users and profit.
- The system software is completely decentralized and can be verified at any stage of its operation.
Disadvantages of Chainlink (Link)
In this analysis of Chainlink (Link), we also find some disadvantages that are not important enough to detract from the actual value of this oracle. But, on the other hand, it is essential to know them and be aware of them when starting our operations in this network. First of all, the protocol does not guarantee users' privacy. In addition, although it has not yet established itself as the main currency in the market, regulatory risks are still present while it is a cryptocurrency.
Although the system encourages and promotes the excellent work of the nodes within the network, it is possible that a malicious or malicious participant can carry out a Sybil attack on the web. As a result, there is a risk that false data could be entered, and the information provided could be manipulated. In this way, those requesting information used by such an actor is greatly affected. Although this is an unlikely situation, there is always a chance that this could happen. This means that Chainlink (Link) is forced to foresee possible solutions to eradicate the problem for good.