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Occasional rising stars in the altcoin world are nothing new. But sometimes, one comes along that is more than a flash in the pan and threatens to disrupt the entire crypto ecosystem. Chainlink has regularly featured in the headlines over recent months, and not just because it burst into the top ten cryptocurrencies by market cap last month. Chainlink has the potential to bridge that troubling gap between real world events and digital transactions that has been such an obstacle to smart contracts becoming the norm.

Asking the oracle

The benefits of smart contracts for businesses in industries as diverse as insurance, employment, supply chain management and even publishing have been widely reported in publications such as Coin24 News Online. Smart contracts are secure, transparent, auditable and reliable. However, there are also constraints to their use.

In most cases, there is some requirement for external data, ie information that is held off the blockchain. To take a simple example, we could consider a smart contract that might have been set up to manage bets on the winner of Super Bowl 54. Football enthusiasts the world over would have placed their bets on San Francisco or Kansas, with the smart contract paying out to those who backed Kansas after the game.

However, for this to work, the contract needs to know that Kansas won the game. Clearly, for such a high profile event, it is easy enough to get the information. But suppose we were talking about some more obscure event? The idea behind Chainlink is to provide a network or oracles, named after the all-knowing sages of Ancient Greece, that provide an exhaustive, accurate and incorruptible source of data that can be brought into the blockchain. 

How does it work?

That sounds great in theory, but real-world oracles are in short supply these days. To understand how it works, we need to apply it to a smart contract as a whole. Contracting companies install a piece of software called Chainlink Core, which links them to the Ethereum blockchain and to oracles. All transactions are undertaken using LINK tokens.

For any one request, several oracles will be consulted, and each of these will use different data sources. As an added protection, each oracle can be required to stake a link token as a guarantee that they are accurate. Oracles are paid in LINK for the data they provide, but if their answer does not correspond with the majority of other Oracles, they will not be paid and they will also lose their stake. As a further disincentive to collusion or corruption, a reputational scoring system identifies the most trusted oracles and gives them the opportunity to earn more for the data they provide. 

What about the token?

Now we understand the theory behind Chainlink, we can see why the LINK token itself is causing such a stir. Unlike most Altcoins, it is a digital asset that is in active use in the decentralized Chainink ecosystem. These are still early days, but expect to hear plenty more about Chainlink over the coming months. It might just represent the future of smart contracts.  


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