Chainlink Review: A Decentralized Oracle Service

ChainLink has been around for some time, and is one of the top 100 coins by market cap, but many people haven’t heard of the project. They should though.

ChainLink is something different in the blockchain space. It’s the first ever decentralized oracle service, and could revolutionize smart contracts.

When Ethereum came on the scene in 2015 it was revolutionary in terms of enterprise solutions and traditional business adoption of blockchain technology. It took blockchain from just being a new age financial transaction medium and made it much greater. The smart contracts created on Ethereum by Vitalik Buterin opened up what blockchain technology could be used for massively.

While all that is true, smart contracts also come with one glaring problem.

Smart contracts are only capable of managing data on their own blockchain. And because of that the potential uses and decentralized applications that could change the world have been very slow to materialize. Smart contracts needed a bridge from their blockchain to the real world.

Enter ChainLink.

ChainLink will allow smart contracts to use the network’s oracles to pull data from off-chain sources. That means they can use application program interfaces (APIs) and data pools, along with other real world resources. In essence, ChainLink makes it possible to take any information from off-chain and put it on a blockchain where it can be used by a smart contract.

Oracles like those being created by ChainLnk will be critical to some blockchain protocols that have very limited utility without access to off-chain data. ChainLink want to be the link between traditional data structures and blockchain protocols.

Now that you’ve had a brief taste of what ChainLink is and what it aims to do, let’s take a deeper look at the project and its goals.

Chainlink Review: How ChainLink Functions

The core goal of ChainLink is to be the bridge between on-chain and off-chain resources. As such, there are two main architectural components of ChainLink: on-chain infrastructure and off-chain infrastructure. Let’s look more closely at each.

On-Chain Functions

The first components of ChainLink are the smart contracts that exist on-chain and are deployed on Ethereum’s blockchain. These smart contracts include oracles that are capable of processing data requests from users looking to use the network oracle services.

The way this works is that any request for off-chain data is submitted to the ChainLink network via a requesting contract. The blockchain then processes each request and integrates it into the proper smart contracts.

These contracts then match the requests with the proper oracle. There are three types of contracts that can help with matching: the reputation contract, the order-matching contract, and the aggregating contract.

The reputation contract is responsible for verifying the integrity of the oracle provider. If that checks out the order matching contract then works to match the requesting contract with a reputable oracle provider by comparing oracle bids with the service level requested. The final step is for the aggregating contract to accumulate all the data from the chosen oracles and deliver the most accurate result.

These three contracts take the on-chain function of ChainLink through a three-step process as follows:

Step 1 – Oracle Selection: The user submitting a requesting contract also specifies the requirements needed, which is called the service level agreement (SLA). This can include a number of parameters including the number of oracles or data sources needed, the data specifications, the optimal oracle reputation, and many others. When the results are returned the user can filter those results or manually search for ChainLink oracles. If a manual search isn’t practical an automated match will occur where oracles will bid on the contract based on the SLA. Once enough bids are received the requesting contract will choose and oracle or oracles and the service agreement is signed.

Step 2 – Data Reporting: This is the process where the oracles collect and transmit the requested data to the on-chain nodes for processing.

Step 3 – Result Aggregation: The results of all the oracles are collected and averaged by an aggregating contract. This is done to ensure the integrity of the data. Once the weighted average is calculated it is delivered to the requesting contract. It’s true that there are many cases where data cannot be averaged, but for the sake of simplicity this article will not go into such cases.

Off-Chain Functions

The second components are the oracle nodes that exist off the chain, but are connected to the Ethereum network. In its current state ChainLink is only able to interface with Ethereum smart contracts, but plans are that future versions will be able to work with smart contracts on many networks. The off-chain nodes do the heavy lifting, collecting off-chain data as needed.

Once the data is collected the off-chain nodes process it through ChainLink Core, which is the software that allows ChainLink’s blockchain to interact with off-chain entities. ChainLink Core process the data and then passes it on to the oracle for aggregation.

Off-chain nodes don’t do all this work for free. They need to be paid in LINK for the data harvesting and transmission.

Off-chain nodes also have a secondary function to allow developers to integrate what are known as external adapters. These are similar to decentralized applications on the Ethereum network. External adapters are written by developers to add more functionality to off-chain nodes. They can also be used to perform subtasks that make data collection more efficient.

Distributed Sources and Distributed Oracles

These two concepts are important, because they show how ChainLink is different from other oracle protocols.

Other oracle protocols are centralized, and this can lead to fraudulent data. ChainLink avoids this and other security issues by being completely decentralized.

ChainLink uses what it calls source distribution and oracle distribution to remain decentralized and secure. In the first case, oracles can draw their data from multiple sources to maintain a good reputation on the network. And for the second case, wherever a request is delivered to the network it is contracted to multiple oracles.

Here’s an example to keep these concepts clear.

Consider a user called the Always Stock Tracker. This user needs stock market data and submits a request to ChainLink. The ChainLink oracle matches the request with three different oracles, using oracle distribution to maintain secure results.

The network also prefers source distribution as part of its decentralization, so these three oracles, we’ll call them A, B and C, all draw their data from different sources. Oracle A gets its data from Yahoo Finance and Nasdaq, Oracle B gets its data from Bloomberg and CNN Money, and oracle C gets its data from Market Watch and Barron’s.

This keeps the network completely decentralized since Always Stock Tracker will get aggregated data from three reputable oracles, who each get their data from different sources.

This system also keeps the oracles hnest, since the data they report is being measured against other oracles. If an oracle begins tampering with data or providing fraudulent data it would be punished by the network with a damaged reputation and other penalties.

What are the Positives of ChainLink?

The biggest positive development at ChainLink has been its partnership with SWIFT, the U.S. banking transaction network. There’s not too many blockchain projects who can say they’ve partnered with one of the largest global financial networks.

That said, SWIFT is not planning on using the ChainLink protocol. Instead, the ChainLink team is helping them to develop the SWIFT Smart Oracle.

ChainLink also has little in the way of competition, as there aren’t many blockchain oracle development teams, especially those trying to create a decentralized network. There’s Aeternity and Mobius, but that’s it.

And while ChainLink has suffered in 2018 from the bear market in cryptocurrencies, it looks like the LINK token hit a bottom back in June, and unlike most other coins is edging higher while the rest of the market is flat to lower for the most part.

ChainLink Partnerships

I already mentioned the SWIFT partnership, but that’s not the only big industry partnership that ChainLink has already secured. Because LINK is often overlooked and there’s not been any marketing behind the coin at all, many people aren’t aware of these partnerships, which could take other coins to billion dollar market caps.

The ChainLink partnerships:

  • 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 FUD

There’s a good reason ChainLink is so unknown and that’s because the developers haven’t done any marketing of the product at all. While other founders are huge at going on tour and hyping their coin at every turn, Sergey Nazarov, the founder of ChainLnk, is exactly the opposite. He rarely tweets or posts on social media, he refuses to give interviews or speak at events, and other than the occasional comment in the ChainLink Slack he doesn’t really interact with the ChainLink user base.

That’s just the start of the FUD though.

We have to go back to September 2017, when ChainLink was having an ICO presale, to truly appreciate the strangeness behind this project.

During the ICO ChainLink saw quite a bit of hype in the 4Chan /biz/ community, as well as on Reddit. Even though the marketing didn’t really extend beyond these tech circles the ChainLink ICO was able to sell out.

What was odd was that the ICO didn’t use smart contracts, even though it was a product of the founder’s platform. There were also some claims about tokens not being paid out properly.

There was also a bit of negativity surrounding the LINK token after the ICO because the price didn’t continue higher following the token release.

Instead it dropped.

And while it’s done ok on a U.S. dollar basis, the coin has never reached its October 2017 high in BTC terms. This has caused the negative comments about the coin because in cryptocurrency terms a coin that doesn’t provide stellar returns nearly a year after being released isn’t worth buying or holding.

LINK Price History

Immediately after the ICO the price of LINK rallied, reaching $0.47 in U.S. dollar terms and just over 0.0001 BTC in October 2017. It dropped from those levels and while it rallied to $1.35 in January 2018, it has since fallen and is trading at $0.248 as of September 2018. The good news is that it was trading just below $0.17 back at the end of June 2017, so appears to be on the upswing. It’s also the #66 coin by market cap, with a total market cap just shy of $87 million.

Where to Buy LINK

Most of the trading volume in LINK is on Binance, although there is some trading happening on Huobi, Mercatox and OKEx. Overall, the LINK token is listed on 10 exchanges.

Where to Store LINK

LINK is an ERC-20 token, and can be stored in any wallet that supports ERC-20 standards.

The Future of ChainLink

There’s no roadmap for ChainLink, but they have released the testnet for their services some time ago. The development team is continuing to work on the mainnet and of course they also continue working with SWIFT to help them develop the SWIFT Smart Oracle.

The project is short on communication, lacks marketing and in general has frustrated community members with its lack of openness. The founder, Sergey Nazarov is known as a quiet individual who prefers to remain behind-the-scenes as he works on developing ChainLink.

For all his public quietness, Nazarov has managed to secure a partnership with SWIFT and that by itself could be enough reason to believe in the project, although it is difficult given the lack of information and guidance.

Chainlink Review: Conclusion

While the ChainLink project may be difficult to get your head around, once you do you’ll see how critically important the ChainLink platform is to the future of blockchain technology.

Blockchains need working oracles to become as useful as possible and to see greater adoption. Without oracles blockchains remain insular, and not nearly as useful. Currently ChainLink is one of the few oracle providers, and are considered as an industry leader by some.

They are also the only decentralized oracle provider, and for oracles to remain secure decentralization is a need that has to be filled.

The lack of marketing by the project is concerning, but if they deliver what the industry needs they could get by without marketing, rising instead on their successes in creating decentralized oracles for the likes of SWIFT.

Chainlink Rating: 4.0 - Review by