What Is Chainlink?
Blockchains can’t see beyond themselves. They can only perceive what’s happening within their own code and are blind to the outside world. In other words, a blockchain is limited to transferring and creating tokens, meaning it can’t, for example, scout the internet for weather or economic data or search for information about relevant news.
Luckily, we’ve already figured out how to bring off-chain data to blockchains. The answer lies in blockchain oracles.
Photo illustration: Freepik
Blockchain oracles are third-party services that feed blockchains to off-chain data. Now, developers need data from the outside world to enrich the ecosystem by building advanced applications beyond standard blockchain capabilities. As a result, we now have a variety of decentralized applications that allow us to utilize the power of decentralization and create more secure and reliable alternatives to centralized systems.
Chainlink is the largest oracle network built on Ethereum. This network allows the exchange of high-quality and tamper-proof data between smart contracts and off-chain data sources. It’s essentially a bridge between blockchains and the real world. Without it, and other oracle networks, for that matter, the world of decentralization as we know it today wouldn’t exist.
Chainlink Use Cases
In discussion with WebMind, Solange Gueiros used an excellent example to explain some of the use cases of Chainlink. Let’s say you’re working in the farming industry. Naturally, you’d want to buy insurance to protect your crops from unstable weather conditions. Now, insurance in the current centralized system has a few flaws. It’s not as transparent, efficient, and ample as it could be.
Solange Gueiros; Source: WebMind
Blockchain technology could solve these issues, allowing insurance issuers to optimize operations, increase transparency, and cut costs. But remember how we established earlier that blockchains can’t “see” outside themselves? Well, that’s precisely where Chainlink comes into play.
Chainlink’s primary use case is to ensure decentralized projects like this one can rely on real-world data. Chainlink nodes interact with deployed smart contracts, which can then use the data to execute the terms and agreement of a said contract, allowing farmers, for example, to get their insurance money in case of a drought.
As Solange explained, Chainlink not only supplies data that would allow smart contracts to execute agreements but also helps eliminate mediators and allow for automation to happen. By providing high-quality and temper-proof data and optimizing business operations to the fullest, Chainlink has become an essential tool for embracing decentralization.
Speaking of data, we asked Solange what data type is most requested by Chainlink users. Economic data is still the most prevalent data users need to keep their projects alive. However, it should be noted that Chainlink feeds blockchains to a variety of information, ranging from sports, weather, economics, and all other types of data.
But what happens when those projects start relying more and more on off-chain data? Should we worry about congestion?
Solange has an answer to that. Chainlink is evolving to become more decentralized and scalable. As node responses are collected off-chain before being sent to clients, the nodes don’t overwhelm the network by continually submitting updates in the form of on-chain transactions. Instead, only one transaction is submitted to the chain, allowing the network to mitigate the risk of congestion.