Chainlink is a decentralized and Oracle-based network that plays a vital part in the execution of real-world blockchain technologies.
The main purpose of the Chainlink network is to deliver practical input on a variety of external sources of data.
Although blockchain is advanced and excellent at what it does, it is a comprehensive and decentralized, secure ledger for all digital transactions.
The issue concerning many blockchain oracles is that the network is not ideal at taking input for events happening outside of the blockchain network.
There are various “off-chain” things that impact traders and markets, such as fiat currencies, credit cards, and even the weather forecasts and sports scores.
As a decentralized and Oracle-based system, Chainlink can efficiently deliver the input in the form of smart contracts.
These smart contracts help the network to remain in contact and respond to various inputs.
As the first-ever digital currency, Bitcoin and its corresponding blockchain networks can only route a small range of these inputs.
But newer blockchain networks like Ethereum have a much broader spectrum, including support for programmable smart contracts.
On that note, Chainlink was initially launched in 2019 on the Ethereum blockchain network, and you can use it with other blockchains as well.
How does Chainlink work?
To enable communication between the users and external data sources, Chainlink executes the whole process in three different steps:
Oracle Selection:
First, Chainlink operators will have to draft a service-level agreement that includes and stipulates a set of needed data requirements.
Then it utilizes the SLA to match the user with oracles to deliver the information.
Once the required parameters are ready, the user submits the SLA and deposits their LINK currency in an Order-Matching contract that receives bids from oracles.
Data Reporting:
At this stage, oracles connect with various external sources to get the real-world data demanded in the SLA.
The data is managed by the oracles, and they sent it back to the contracts operating on the Chainlink blockchain.
Result Aggregation:
This last step is about verifying the data gathered and returned by oracles to an Aggregation contract. The Aggregation contract receives the responses, ensures the validity of data, and gives a weighted score.
Does Utopia Digital Asset Management invest in Chainlink?
Chainlink is the premier oracle project in the blockchain economy. As such, we consider it integral for DeFi projects and for the wider ecosystem in general.
You can invest in our fund via ICONOMI from as little as €10.
To Conclude
Chainlink is an advanced and essential technology that will go beyond the limits of what we deem possible with technology, just like other evolving cryptocurrencies.
Having an Oracle-based network such as Chainlink is key to the long-term stability and practicality of cryptocurrency.
Thus, LINK can be a great investment if you also think that Chainlink will become the industry’s standard as the decentralized oracle network.