Chainlink Explained

Smart contracts

First, to understand what Chainlink is used for, it is crucial to understand smart contracts. These contract programmes, in basic terms, are agreements on the blockchain that evaluate information and automatically execute when certain conditions are met. This is useful if two parties want to make agreements and not have third parties involved. Because smart contracts exist on a blockchain, they can’t be changed and are easily verifiable.

Although smart contracts are a great tool, they too have their limitations. The most significant weakness of smart contracts is that they cannot independently access the data outside of the blockchain and require off-chain data. As a solution to this problem, there are oracles. They are a middleman between the real world and the smart contracts on the blockchain and supply the information needed to check when certain contract conditions are met. However, singular centralized oracles can be untrustworthy and could be compromised. This is where Chainlink comes in.

Chainlink

Chainlink is a distributed program built on top of Ethereum. This project has solved the centralized oracle problem of smart contracts by creating pools of oracles that try to provide reliable information from the real world to the smart contracts. This strive for high-quality information is met by ranking the oracles in terms of their reliability, where well-performing oracles earn LINK tokens, while poorly performing oracles with unreliable information lose their tokens.

The popularity of Chainlink is no surprise to many since it not only solves one of the most significant weaknesses of smart contracts but also, at the moment, there isn’t much significant competition in the field. On top of that, Chainlink has backing from many well-known cooperations. Some believe that in the future smart contract can replace traditional contracts, thus adding to the success of Chainlink.

The LINK token

The LINK token, which is built on Ethereum following the ERC-20 standard for tokens, is used in two main ways. One of the uses for LINK is for smart contract holders to pay Chainlink oracles for their work based on demand for the data they can provide and the current market for that data. And the other use for the token is for oracles to deposit LINK with Chainlink to demonstrate their commitment to the network and incentivise them to provide a good service.

Since the launch of Chainlink and its token LINK, many different blockchain projects have integrated Chainlink's oracles into their network. Some speculate that the demand for smart contracts will increase in the future, and with this, the price of LINK will follow. It is also important to note that the maximum number of LINK tokens is predetermined similarly to other popular cryptocurrencies.

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