[EN] Chainlink : the God of decentralized oracle networks

What is Chainlink?

Chainlink is a blockchain middleware platform used to connect smart contracts on a blockchain to data, payments, APIs, and more outside of the blockchain. Chainlink’s role is to help Ethereum-based smart contracts easily connect with real-world data. Chainlink’s monetary unit is LINK. The founders are Sergey Nazarov and Steve Ellis, who have been researching and developing public chains and protocol services, and the consensus algorithm is Proof of Reserves.

At the time of writing, 8 April 2023, Chainlink is the 19th largest cryptocurrency by market capitalisation, with LINK priced at $42.89 and a market capitalisation of approximately $3.7 billion. The total supply of LINK disclosed in the whitepaper is 1 billion LINK, of which 517,099,970 LINK are currently circulating in the market, or about half. The top 10 LINK holders hold about 32% of the total supply, and the top 100 holders hold about 73.89% of the total supply.

Conceptual diagram showing how a decentralised oracle network passes off-chain data to contracts (Source: Chainlink 2.0 whitepaper)

 

Information recorded on a blockchain has the advantage of being secure and publicly stored due to the nature of the blockchain. However, problems arise when incorrect information is recorded on the blockchain in the first place. Unless it is a fully private or consensus blockchain, it is difficult to delete records that are incorrectly recorded or contain personal information. These problems are known as oracle problems. Chainlink is responsible for connecting off-chain data with on-chain smart contracts. By ensuring that the off-chain data required by the smart contract is validated by Chainlink, the oracle network, we solve the oracle problem by ensuring that incorrect or problematic records are not written directly to the blockchain.

Chainlink is in a market dominant position

Chainlink is the overwhelming leader in oracle networks that connect on- and off-chain. Other projects are far behind Chainlink, with less than a tenth of the market cap of Chainlink.

Oracle Network Market Cap Ranking by Coinmarketcap (Source: Coinmarketcap)

 

As a result, oracles are most commonly used in DeFi projects where solving the oracle problem is critical, such as collateral-based stablecoin projects.
Chainlink is also gaining traction in the NFT market, which has recently lost much of its appeal as an investment. This is because the technology to change NFT metadata through Dynamic NFT, which Chainlink is actively promoting, is emerging. In the case of conventional NFTs, it is impossible to directly modify the metadata after minting, which limits the utility of the NFT itself, but a way to increase the utility of the NFT itself through Dynamic NFT is being researched. When changing the metadata of these Dynamic NFTs, Chainlink will take on the role of an oracle network that verifies data off-chain. I have a plan to conduct separate research on this aspect of Dynamic NFTs in the future.

The virtuous cycle of the Chainlink network (Source: Chainlink 2.0 whitepaper)

 

Chainlink supports multiple platforms and dapps, including Ethereum, Polkadot, and more. In partnership with SWIFT, it has networked with major banks in each country to enable interbank payments, money transfers, and more. As on- and off-chain connectivity becomes increasingly important, Chainlink’s potential for development is also high, as it has a wide range of partnerships and overwhelming market dominance.