What is Chainlink? Whitepaper, Ecosystem and Roadmap Review

Chainlink (LINK) In A Nutshell

Chainlink is a decentralised blockchain oracle network built on Ethereum. The oracles give real-world data from third-party sources to smart contracts on the blockchain.

Oracles increase smart contract interconnectivity by providing access to reliable data feeds, payments, APIs, and other resources for smart contracts.

The Core Of Chainlink

Chainlink is a middleware that connects on-chain and off-chain systems, which we’ll discuss later in this article. Chainlink enables smart contracts to react to real-world events and execute agreements that require external proof of performance by giving access to off-chain resources.

The LINK network and token are at the core of the Chainlink ecosystem. Although Chainlink's solutions are based on the Ethereum blockchain, the company plans to support other major smart contract chains.

Chainlink, unlike Ethereum, works on many blockchains at the same time. It allows external blockchain integration in return for data feeds. Chainlink can access not only real-world data but also payments and events, all while maintaining security.

How Does Chainlink Work?

ChainLink works by connecting the blockchain ecosystem to external applications. The core functions of Chainlink depend on two processes: on-chain and off-chain.

On-Chain Function

The on-chain component of Chainlink comprises Ethereum's blockchain oracle contracts. They keep track of and respond to data requests from users. When someone requests off-chain data, they send the request (contract) to the Chainlink network, converting it into a native blockchain contract.

The Chainlink contracts then match the request to an appropriate oracle service. The Chainlink's on-chain unit follows a three-step process when these contracts are used: 1) Choosing an oracle, 2) Reporting the data, and 3) Combining the results. Let’s see how each one works.

1. Oracle Selection – First, Chainlink users draft a service-level agreement (SLA) that specifies a set of desired data requirements. The software then uses the SLA to match the user with oracles that can provide the data.

Once the parameters are set, the user submits the SLA and deposits their LINK cryptocurrency in an Order-Matching contract, which accepts bids from oracles.

1. Data Reporting – This is where the oracles connect with external sources and obtain the real-world data requested in the SLA. Oracles then process the data and send it back to contracts running on the Chainlink blockchain. 
2. Result Aggregation – The last step involves tallying the results of the data oracles collected and returning them to an Aggregation contract. The Aggregation contract takes the responses, assesses the validity of each, and returns a weighted score to the user using the sum of all the data received.

Off-Chain Functions

Off-chain oracle nodes that connect to the Ethereum network make up the second key component of Chainlink architecture. Nodes gather external requests, and individual responses are summed up via numerous consensus mechanisms and then converted to a single, reliable global response and a contract.

Chainlink Core, the critical component that connects the blockchain and off-chain data resources, processes the gathered data. The Chainlink Core is the device that converts off-chain data into information that an on-chain oracle can use.

What Problems Does Chainlink Aim To Resolve?

The inability of decentralised applications to interact with data outside of the blockchain is one of the main barriers to widespread adoption. For example, Ethereum smart contracts have no native mechanism for accessing data outside the ecosystem.

With the help of its innovative technology, Chainlink attempts to tackle this problem. Chainlink has created a platform for blockchain oracles, network nodes that bridge on-chain and off-chain data. Simply put, smart contracts utilise Chainlink to obtain data from the outside world.

What Makes Chainlink Unique?

Chainlink's off-chain architecture is one of its unique features. This architecture includes the ChainLink network, which connects all the nodes in a network. The Chainlink service connects these nodes to reserves via APIs to collect responses for each contract.

The ChainLink core software is used to translate all off-chain data and can read on-chain without translating. The sub-tasks of the service level agreement are also processed by this program, indicating that the complete procedure can take place on-chain or off-chain.

Chainlink offers a series of oracles to off-chain data and prevents off-chain data from manipulation.

Chainlink Financial Analysis

To learn how Chainlink has performed financially, we will check out its token distribution, supply schedule, and price analysis.

LINK Token Distrbution

The LINK token was launched on September 19, 2017, with a hard cap of $32 million. LINK was sold at $0.09 per token during the pre-sale, with a 20% bonus depending on when the investor participated in the ICO.

Later, LINK was sold at $0.11 per token in a public sale. Both sales totalled 350 million LINK tokens. A total of 1 billion LINK tokens were issued at the start, distributed as the following pie chart shows.

• 35% of the tokens went to incentivise the Node Operators.
• The other 35% were sold in the pre-sale and public sale.
• The company reserves the remaining 30% of LINK tokens.

Supply Schedule

The outstanding supply of LINK has been fixed. Although the Node operators' awards (35% of the total supply) have yet to be distributed, they are still liquid because they lack any indication that any contract binds them.

Nodes get rewarded for retrieving and providing data, and the contract creator determines the rewards.

Chainlink Price Analysis

Between mid-2019 and mid-2020, Chainlink experienced significant price growth, and this bull run became a well-known meme referred to as "LINK Marines".

On May 9, 2021, Chainlink reached the All-Time High on the back of an overall crypto market rally and developments in the Chainlink ecosystem.

Currently, on Nov 29, 2022, the Chainlink rank is #21 among all crypto projects by market cap, with a market cap of $3 billion.

The number of LINK tokens circulating in the market and public hands is about 491,599,971.23 LINK, which amounts to %49.16. The number of transactions is 15 million, and the number of wallets created for the LINK token is 912K.

Chainlink Technical Analysis

Based on the quick snapshot of ROI (Return On Investment) over different periods in Cryptologist, it is indicated that the annual ROI for the LINK token is -%70, meaning that if you had invested about $100 in Chainlink, you would have only $30 left!

Based on Chainlink’s data on Github, the number of its current contributors is over 90, and we all know it's best to invest in projects with multiple contributors. Moreover, the number of commits in Chainlink is more than 190.

Over the last six months, Chainlink has attracted a lot of attention on social media, and the growth of Twitter followers has been almost 80%! Moreover, this project's number of Telegram channel and Reddit account users is increasing.

Chainlink Execution Process

Smart contracts are pre-specified agreements on the blockchain that evaluate information and automatically execute when certain conditions are met. LINK tokens are digital asset tokens used to pay for services on the network.

Two key objectives to ensure security on the Chainlink network are the distribution of data sources and the distribution of oracles.

Like all networks, Chainlink wants to add more people and operators to become more robust and valuable–increasing network effects.

Though Chainlink started on Ethereum, its oracle services are available on other blockchains, such as Bitcoin and Hyperledger.

The Road Chainlink Has Paved Last Year

Chainlink is the undisputed leader in the oracle crypto niche, and now the project is looking to go beyond basic data delivery. Chainlink's purpose is to provide off-chain data to blockchains.

Without this off-chain data, most decentralised applications wouldn't work. Let’s check out the road Chainlink paved over the last year. 

January 29, 2021

To raise global knowledge and understanding of smart contracts, blockchains, and oracle technology, Chainlink joined the UNESCO Global Education Coalition.

People and institutions worldwide can access educational resources and development programs through Chainlink.

February 1, 2021

Kraken announced it brings spot prices to DeFi with a new Chainlink node. It will be making Kraken’s spot prices available to Decentralised Finance applications and developers on Ethereum and other leading blockchains by running their own Chainlink node.

February 24, 2021

Chainlink also introduced its off-chain reporting or OCR protocol, making it possible for oracles to securely aggregate their data off-chain before submitting it to the blockchain.

The OCR upgrade reduces the cost of Chainlink data feeds tenfold due to the Ethereum gas fees it saves.

April 6, 2021

Grayscale announced that it added Chainlink to its large-cap digital fund and currently accounts for just over 0.5% of its $540M allocation. The native coin of Chainlink fills the hole left in the fund once XRP is removed.

April 15, 2021

Chainlink released the 2nd version of its whitepaper, redefining oracle networks as a “general-purpose, bidirectional, compute-enabled interface between and among on-chain and off-chain systems.”

The foundation to achieve this goal is Decentralized Oracle Networks (DONs), a new oracle network purpose-built to meet the connectivity, scalability, and privacy needs of existing and future smart contract applications.

April 30, 2021

Chainlink partnered with UNICEF to fund blockchain-based startups and initiatives in developing countries. The Chainlink Community Grant Program provided financial resources to the many researchers and development teams, building a more accessible, functional, and socially impactful Chainlink network.

June 4, 2021

Chainlink and the IEEE Computer Society's Blockchain and Distributed Ledger Standards Committee (IEEE BDL) are working to develop global standards for adopting decentralised oracle networks.

Their primary goal is to provide a common framework that establishes best practices for building dApps with oracle networks and hybrid smart contracts.

August 5, 2021

Swisscom joined Chainlink as part of a pilot initiative, and oracle nodes serve as a link to off-chain data, which is primarily price data at the moment. The Chainlink network compiles price data from all oracle nodes into a reliable consensus value.

DApps can then use this value to settle financial contracts. Many other technological businesses, like telecom giant T-Systems, already run similar oracle nodes, in addition to Swisscom.

September 25, 2021

IOHK announced that Cardano would use Chainlink oracles for its off-chain data, which surprised many people. It is because IOHK had initially planned to create its in-house oracles for Cardano.

During one of his many AMAs, Cardano founder Charles Hoskinson noted significant friction between Link’s marines and the Cardano community.

November 26, 2021

Chainlink supports Ethereum infrastructure development through the upcoming Gitcoin Grant. Chainlink is joining the Gitcoin Grants round 12 to support infrastructure development for the Ethereum network.

The oracles of Chainlink have driven the total value locked (TVL) in various DeFi projects. Using Chainlink's oracles, the TVL of the Avalanche protocol has increased by almost 88x since July 2021.

What Is The Next Step In Chainlink?

The long-term success of Chainlink is ultimately determined by its future goals, which are stated in the Chainlink 2.0 whitepaper, and all revolve around decentralised Oracle networks (DONs).

DONs, according to Chainlink, are similar to layer two scaling solutions in that they allow secure off-chain computation. DONs will enable the implementation of hybrid smart contracts that mix on-chain and off-chain computation and off-chain data for cryptocurrency blockchains.

Moreover, Chainlink has recently announced another service called Keepers. Chainlink Keepers provide users with a decentralised network of nodes incentivised to perform all registered jobs without competing. It allows developers to automate certain smart contract tasks and functions that involve off-chain input or data.

Chainlink 2022 Moves

This year, Chainlink will launch staking, allowing LINK holders to receive rewards by locking up part of their LINK in the protocol. It also aims to scale at an “insane vertical rate,” says Sergey Nazarov.

The development of the cross-chain communication protocol (CCIP), which was first announced in August, is another milestone chainlink hopes to achieve in the coming months.

CCIP provides a universal, open standard for developers to build secure services and applications that can transfer tokens, send messages, and initiate actions across multiple networks. Interestingly, the CCIP will feature an anti-fraud network.

Chainlink Grants Program

Chainllink's explicit goal is to expand its community grants program. In June, Chainlink announced that it would be accelerating its social impact investing with the Chainlink grants program and looking to partner with more non-profits and NGOs.

What Is Chainlink Focusing On These Days?

Currently, chainlink co-founder Sergey Nazarov has been hyper-focused on DeFi 2.0, which involves using non-crypto assets, such as real estate and corporate debt.

Obviously, the DeFi generation protocols will need Oracles, too, and Chainlink is likely looking to be the oracle of choice in this new crypto niche. The last point of focus for Chainlink going toward seems to be the Metaverse.

Chainlink has recently explained that oracles would be needed for Metaverse worlds to reach mainstream adoption, especially those built on cryptocurrency blockchains.

It implies that Chainlink is looking to partner with tech giants like Meta and Microsoft to help them with their Metaverse endeavours.

Meta's CTO has recently mentioned that they’d be looking to become interoperable with cryptocurrency blockchains. So, it’s not highly unlikely to expect future cooperation.

Chainlink Strengths

• Chainlink provides novel solutions to the oracle problem by creating a trustless bridge between blockchains and off-chain data sources.
• Chainlink is built to work with any blockchain, allowing for a wide range of integration possibilities.
• Chainlink is a pioneer in the decentralised oracle network, partnering with various institutions, including SWIFT, other blockchains like Binance and Polkadot, and giant corporations like Oracle.
• Chainlink may profit from growing use, and the potential expansion of the crypto sector as a whole as smart contracting technology penetrates legacy systems.

Chainlink Weaknesses 

• 60% of Chainlink’s supply is not freely traded on the market and is under the control of Chainlink, and there are no restrictions on the distribution of node operations’ rewards.
• Chainlink’s oracle network is still limited and could be further decentralised.
• Since Chainlink is built on Ethereum, issues with Ethereum could also impact LINK.

Chainlink In The Coming Years

The future of Chainlink is predicted to be quite bright. The coin's economic potential is huge, given the wide range of applications for the technology behind it. Incorporating real-world data into smart contracts is necessary for any field: transport, telecommunications, governance, healthcare, etc.

Chainlink Upcoming Projects

Although Chainlink competes with projects like Band Protocol, it remains the market leader.

• By the end of 2022, Chainlink could boast up to 44 integrations. Currently, the list of Chainlink partnerships, collaboration, and integration is above 1100.
• Chainlink is now integrated with “Revolve Games”, which redefines blockchain gaming, with a robust gaming ecosystem plugged into the heart of DeFi.
• On Jan 20, 2022, Diatom DAO integrated Chainlink Keepers for reliable token supply rebases and Chainlink Price Feeds to help calculate bond discounts.
• Also, Etherisc has launched a decentralised flight insurance product that uses Chainlink Data Feeds to autonomously issue policies and execute payouts for travellers experiencing flight delays.

All and all, as a leading project in the Decentralised oracle network, Chainlinks’s active team members are looking to put a step on DeFi, Metaverse, and NFT projects.