- Chainlink is a leading decentralised oracle network that ensures smart contracts can access real-world data.
- Chainlink’s on-chain and off-chain architectures enable the network to bridge on-chain and off-chain environments.
- The LINK token, integral to Chainlink’s ecosystem, incentivises data accuracy, ensures system security, and serves as a medium of exchange within the network.
What Is Chainlink?
A decentralised oracle network, Chainlink allows smart contracts on blockchains to securely connect to external data sources, APIs, and systems using specific software. Oracles within the Chainlink ecosystem are incentivised to provide accurate data because of the reputation score mechanism in place.
When oracles follow the set rules, they are rewarded with Chainlink’s native LINK token. In essence, Chainlink fills a critical gap in the blockchain ecosystem by allowing smart contracts to interact securely with external world applications, which enhances their use cases and utility.
How Does Chainlink Work?
To facilitate interaction between the smart contracts in the Chainlink ecosystem and outside data sources, Chainlink employs a unique three-step approach:
- Data Retrieval by Oracles: Chainlink’s decentralised network of oracles fetches external data required by a specific smart contract.
- Data Aggregation: After fetching the data, oracles report their findings and the data is aggregated to form a consensus value, which ensures the final input into the smart contract is accurate and resistant to manipulation.
- Data Delivery to Smart Contracts: The finalised data is then securely relayed to the smart contract for execution on the blockchain.
With its core functional objective to bridge two environments, Chainlink incorporates two important components: on-chain and off-chain architectures.
The on-chain architecture primarily encompasses oracle contracts built on the Ethereum blockchain. These contracts play a vital role in monitoring and handling data requests from users. On-chain architecture forwards requests for off-chain data to the Chainlink network, enabling their processing within native blockchain smart contracts.
The on-chain architecture consists of three main contracts: a reputation contract, an order-matching contract, and an aggregating contract.
- Reputation Contract: Assesses the credibility and performance history of an oracle provider, allowing it to validate authenticity and reliability. This type of contract identifies and eliminates disreputable or unreliable nodes.
- Order-Matching Contract: Plays a crucial role in logging user proposals within the network and gathering bids from oracle providers. Additionally, it plays a significant role in selecting oracle service providers by analysing reputation contracts.
- Aggregating Contract: Consolidates data from the selected oracles and performs validation and reconciliation to ensure accurate results.
Chainlink’s off-chain architecture is responsible for retrieving data from external sources, such as data feeds and APIs, and returning the data to the requesting contracts on the blockchain. Using mainly Chainlink nodes, which independently harvest responses to off-chain requests and the listing services, the off-chain architecture enables Chainlink to provide secure and reliable external connectivity to smart contracts on the blockchain.
What Is the LINK Token?
Chainlink’s LINK token is an ERC-677 token that inherits functionality from the ERC-20 token standard and allows token transfers to contain a data payload. LINK is used on the Chainlink network to reward Chainlink node operators for harvesting external data sources. The LINK token serves as an economic incentive mechanism and a medium of exchange within the Chainlink ecosystem. It is designed to ensure the accuracy, security, and decentralisation of the oracle network.
Features and Utilities of the LINK Token:
- Incentives for Node Operators: Chainlink node operators, who provide external data to the Chainlink network, are rewarded with LINK tokens for their services. This compensation is for both off-chain computation and retrieving data.
- Staking: Staking provides Chainlink ecosystem participants with the opportunity to earn rewards for increasing the security guarantees and user assurances of oracle services by backing them with staked LINK tokens. By staking LINK, token holders and node operators participate in the network’s security. In return, they receive additional token rewards for their contributions.
- Payment for Data: Users or smart contract developers who retrieve specific external data from Chainlink’s network use the LINK token to pay for their services.
Launched with an initial coin offering (ICO) in September 2017, the LINK presale raised US$32 million. LINK tokens were distributed as:
- 35% allocated to the token sale.
- 35% allocated for rewards and airdrops.
- 30% allocated for Chainlink Labs.
LINK has a total supply of 1 billion tokens.
Chainlink Staking v0.2
Chainlink introduced an enhanced staking feature on the Ethereum mainnet in November 2023, aiming to boost the security and adaptability of the Chainlink ecosystem.
During a nine-day Priority Migration phase, existing stakers had the option to transfer their staked LINK tokens and accumulated rewards to v0.2. Subsequently, an Early Access phase followed, allowing individuals to stake up to 15,000 LINK tokens, provided the pool’s capacity had not been reached.
Participation in staking LINK tokens assists ecosystem members, including node operators and community participants, in securing the network and enabling them to earn rewards. LINK has recently experienced a growth of over 30%.
What’s Better About Staking v0.2?
Key enhancements in Chainlink Staking v0.2 encompass increased flexibility for stakers through an unbonding mechanism, heightened security assurances for oracle services through slashing, and the implementation of a modular architecture to facilitate future improvements.
The newly introduced staking pool has an initial cap of 45 million LINK tokens, with 40,875,000 designated for community stakers and the remaining portion reserved for Chainlink node operators currently managing data feeds. Community stakers can stake a minimum of 1 LINK and a maximum of 15,000 LINK, while node operators can stake up to 75,000 LINK.
Where to Trade LINK
Chainlink (LINK) is listed in the Crypto.com App, joining the growing list of 250-plus supported cryptocurrencies and stablecoins, including Bitcoin (BTC), Ethereum (ETH), Polkadot (DOT), USD Coin (USDC), and Cronos (CRO).
Crypto.com App users can now purchase LINK at true cost with USD, EUR, GBP, and 20-plus other fiat currencies and spend it at over 80 million merchants globally using the Crypto.com Visa Card. Alternatively, users can also trade LINK on the Crypto.com Exchange.
Chainlink plays a pivotal role in the blockchain ecosystem by bridging the gap between smart contracts and real-world data aggregation through decentralised oracle networks.
The LINK token, central to Chainlink’s functionality, incentivises oracle accuracy, secures the system, and facilitates various transactions within the ecosystem.
Due Diligence and Do Your Own Research
All examples listed in this article are for informational purposes only. You should not construe any such information or other material as legal, tax, investment, financial, cybersecurity, or other advice. Nothing contained herein shall constitute a solicitation, recommendation, endorsement, or offer by Crypto.com to invest, buy, or sell any coins, tokens, or other crypto assets. Returns on the buying and selling of crypto assets may be subject to tax, including capital gains tax, in your jurisdiction. Any descriptions of Crypto.com products or features are merely for illustrative purposes and do not constitute an endorsement, invitation, or solicitation.
In addition, the Crypto.com Exchange and the products described herein are distinct from the Crypto.com Main App, and the availability of products and services on the Crypto.com Exchange is subject to jurisdictional limits. Before accessing the Crypto.com Exchange, please refer to the following link and ensure that you are not in any geo-restricted jurisdictions.
Past performance is not a guarantee or predictor of future performance. The value of crypto assets can increase or decrease, and you could lose all or a substantial amount of your purchase price. When assessing a crypto asset, it’s essential for you to do your research and due diligence to make the best possible judgement, as any purchases shall be your sole responsibility.