Monday, June 24, 2019

Chainlink - the bridge between real world adoption?

There seems to be a lot of misconception within cryptosubs (specifically /r/CryptoCurrency) around what Chainlink is, and what it does - probably due to the constant brigading of posts and censorship mods employ there - but let's try clear some things up.

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What is Chainlink, and what does it aim to do?

In a nutshell, ChainLink aims to solve the connectivity problem, a key limiting factor for smart contract usability, and whilst it's an ERC-677 token it will not be limited to just the Ethereum blockchain, it is currently able to support any chain that has been developed in Solidity / GO language.

What makes $LINK so special? Well, it's the first decentralized oracle network on ethereum mainnet; allowing anyone to securely provide smart contracts with access to key external data, off-chain payments and any other API capabilities. Anyone who has a data feed, useful off-chain service such as local payments, or any other API, can now provide them directly to smart contracts in exchange for LINK tokens.

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How will Chainlink drive real world adoption of smart contracts?

I'll actually keep this relatively brief, as Chainlink themselves and many others have written up much more informative posts, i'll post a key excerpt - but you can read the posts in their entirety below;

"The primary reason smart contracts have not built industry adopted use cases outside of tokens is that smart contracts are not connected to off-chain data (data not stored on the blockchain). Blockchains cannot interact with off-chain data without interfering with the consensus protocol (the process by which a distributed system forms a single state of truth). Interacting with off-chain data can lead to multiple states of the blockchain ledger.

Today, the main use of smart contracts is tokenization, the process of issuing ownership rights to real-world assets or utility in the form of a token. Tokenization exploded from 2017-2018, raising an estimated 20 billion dollars. One of the primary reasons for the growth of tokenization is that it doesn’t require off-chain data. All the token information for an Initial Coin Offering (ICO) is already known and stored on-chain, in the blockchain smart contract. On the contrary, most smart contracts for industries such as derivatives, insurance, and trade finance need external off-chain data such as IoT data, market data, and events data to trigger execution."

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The Partnerships & IntegrationsThe word partnership is thrown around a lot within this space, but below is a list of the main companies that have partnered, integrated or publicly showcasing how to use a chainlinked smart contract.

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.... and many, many more (seriously, just look at https://twitter.com/chainlink and https://www.np.reddit.com/r/LINKTrader/comments/9wnt57/chainlinks_confirmed_partnerships/ )

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Sounds, good - but what makes the token valuable?

The LINK token is used by smart contract owners to pay chainlink nodes for getting data from them and the more LINKs an oracle node has, the more reputable it is. So oracle node providers are incentivized to hold as much LINKs in their chainlink nodes to appear more reputable to the chainlink network, gaining more usage and profit.

\The below is yet to be confirmed how* exactly it will work - but details will be released in the future\*

Most importantly, LINK can (and will be) used for data request penalty payments to ensure that node operators provide the requested data. Penalty payments are LINK tokens that are required to be held in escrow by the smart contract. They are paid to the smart contract creator in the event any of the node operators do not meet the required data requests as stated in the smart contract. This provides an incentive for smart contract creators to trust node operators, knowing that they have a form of financial insurance (the penalty payment) in the event a node (or nodes) submit bad data.

For information that will trigger high value smart contracts, smart contract owners will want to require a proportionate amount of link to be held in escrow as penalty payments by the node operators. When link is tied up for penalty payments, it is released over the life of the contract. For example, let’s say party A wants an API snapshot sent every day for 30 days. As a hypothetical, lets say the penalty payment for the contract is 300 LINK (per node operator), and each node operator has 10 LINK released to them at the end of each day – receiving the full 300 LINK at the end of the 30 days if they successfully performed the data request the smart contract asked for. Now imagine the smart contract creator wanted 10 node operators. That means 3000 LINK is taken off the market immediately, and 100 of that 3000 is released each day from the smart contract to the individual node operators (10 each per operator, assuming they provided the requested data). A cycle will be created where more and more smart contracts will make requests and node operators will be limited only by the availability of their LINK tokens to be used for penalty payments.

Add it all together and you have a singular payment method for a desired network (the most secure external data oracle), lots of supply constantly locked up to have enough link for signalling purposes (the reputation boost for a node operator), financial insurance for smart contract creators (penalty payments) for increasingly valuable triggering data in a wide variety of smart contracts, and a network poised for growth as more adapters are built and more API’s become available so that dapps can thrive on any blockchain network. Yes LINK is an ERC-677 token, but it is blockchain agnostic and the adapter network can continue to grow.

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LINK can also be staked to provide passive income!

LINK staking is another big thing that will do wonders for Chainlink's valuation. Turns out Chainlink oracles can be made into pools, similar to mining pools on bitcoin and ethereum where multiple people come and put their LINKs together to run a more secure oracle node and distribute the profits fairly between each other. This will be huge as it will effectively allow you to stake your LINK tokens and earn more of them passively without doing anything. One such pool in production is LinkPool (http://www.linkpool.io/).

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Or if you'd rather run your own node - details can be found at https://docs.chain.link/docs/running-a-chainlink-node

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I want to do more of my own research - where do i look?

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I'll finish by saying Chainlink is one of the only tokens that managed to surpass its Jan 2018 ATH in the bear market - is has an incredibly strong fundamentals and the team is one of the most professional out there (even if the community doesn't want you to know!). Chainlink is also being demonstrated at Cloud Expo by an Oracle engineer this upcoming week https://twitter.com/CloudExpo/status/1130937014638006272

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As always, this is not financial advice - but seriously DYOR.


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