Chainlink

Link provides the main incentive mechanism for users to participate in Chainlink’s decentralized network of oracles. Link is an ERC-20 token based on the Ethereum blockchain. Unlike ether (the native cryptocurrency of Ethereum), link uses a type of proof-of-stake (PoS) consensus protocol where participants have to run their own nodes and are required to provide data to smart contracts in order to receive link tokens as a reward. It’s not a case of simply depositing tokens and earning interest.

Because link is used both for the exchange of data services and for node validator staking, it is used both as a means of payment and as a work token. Additionally, link has a hard cap of 1 billion tokens that are distributed as rewards for the validation work of node operators. One billion tokens were created during the token’s launch in September 2017. Some 35% were allocated to a public sale at a price of $0.09 - $0.11, raising $32 million.

The price never climbed higher than $1.30 for nearly two years after the token was launched. Then, in 2019, following a flurry of new partnerships with the likes of Google Cloud, Polygon Network, and Reserve, link prices skyrocketed 489% to $5. Another string of partnerships announced in August 2020, including one with Provide, sent link’s price soaring over the $20 mark for the first time. Between December 2020 and May 2021, link’s price rose more than sixfold and reached an all-time high of $52.88.

When Chainlink was launched in 2017, the original white paper envisioned the project as a centralized oracle system for verifying incoming information. The Chainlink 2.0 white paper in April 2021, however, highlighted a transition from a centralized oracle system to a decentralized oracle network.

By design, Chainlink is blockchain agnostic, meaning it doesn’t operate its own blockchain or work solely within another blockchain. Instead, the token protocol runs on many different blockchains simultaneously and has incentives for its participants to provide and use Chainlink data within their blockchain smart contracts. Chainlink’s oracle network can be used for everything from the weather to presidential election results.

While blockchains are incredibly efficient at storing and recording data, they are unable to send or receive data from any external source. A typical blockchain may only read and receive data that is considered “on-chain.”

Think of a blockchain like a computer that has not been connected to the internet. On the one hand, its isolation from the internet makes its data more secure and reliable. On the other hand, it is limited in its ability to communicate with anything outside of the computer itself. Just like the computer, a blockchain is also an isolated system.

If the blockchain is a computer, then oracles would be like Wi-Fi or internet access. Blockchain oracles facilitate the communications between blockchains with “off-chain” systems like web application programming interfaces (APIs), internet-of-things (IoT) devices, and data providers. Not only do oracles allow for a blockchain to listen and receive data from off-chain systems, but they also let the blockchain broadcast, output, and validate on-chain data to its non-blockchain peers.

Chainlink is a collection of these off-chain communication systems that can be accessed by other blockchains. In many ways, Chainlink is an internet for blockchains. Because Chainlink was designed to be blockchain agnostic, it can provide on-chain and real-world, external data to smart contracts on any blockchain network.