What is Chainlink? Why Is It Important to the Crypto World

Chainlink is a bridge between smart contracts and external data sources as it delivers live data to smart contracts built on the blockchain networks. Smart contracts have become popular because of the transparency and freedom they offer. The users can sign contracts with each other without dealing with a centralized authority.

And the contracts are automatically executed once the terms of contracts are met. The major problem is that these contracts often need to compile information from real-world platforms to execute properly. As a result, their decentralization is affected. And if they follow the proper decentralized path for the execution, it takes more time to complete the process.

In this situation, Chainlink solves the problem by establishing a bridge between the blockchain industry and real-world data.

What is Chainlink LINK?

Chainlink is a decentralized oracle network that collects real-time information from external data sources like APIs and delivers it to smart contracts quickly and securely.

Chainlink Brief History

SmartContract, a for-profit company, launched Chainlink in 2017. Sergey Nazarov and Steve Ellis, the co-founders of the company, published the whitepaper in September 2017. The company raised $32 million through an initial coin offering by selling 35 percent of the total supply.

The remaining 35% of tokens are dedicated to incentivizing the node operators and 30% of the total supply is transferred to SmartContract for further development of the project.

How Does Chainlink Work?

Chainlink is dedicated to providing reliable and trustworthy real-world data to the users through a network of nodes. Chainlink has divided this process into three simple steps to provide the quick and most accurate updates to the users.

Oracle Selection – An event is registered on the Chainlink protocol whenever a smart contract requests external data. These requests are matched with the oracles that can provide the relevant data. The users can then deposit their LINK tokens to further process the request.

Data Reporting – In this step, the oracles collect real word data from external sources based on the requirements of the smart contract. The data is then delivered to the smart contracts that are established on the Chainlink network.

Result Aggregation – In this step, the data is transferred to an aggregation contract for proper validation. The aggregation contract creates a weighted score based on the data received from the oracles.

Understanding the Types of Chainlink Smart Contracts

Smart contracts are divided into three different types.

Aggregating Contracts – The aggregation contracts produce an accurate result based on the data received from different oracles.

Order-Matching Contracts – The node operators submit their bids on the requests once they receive requests from the Order-Matching Contracts. The system then selects the right number of nodes to complete the request.

Reputation Contract – It verifies the authenticity and performance of the oracle provider by checking its track record. It evaluates a number of factors including average response time, the total number of completed requests, and the number of LINK tokens staked by the oracle provider. Unreliable and Disreputable nodes are discarded based on this data.

How Chainlink Nodes Validate Data?

The Chainlink nodes independently collect data from external sources and they aren’t available on the blockchain. Chainlink nodes consist of two important elements.

Chainlink Core – Chainlink core sends assignments to the Chainlink Adapter based on the requests received from the smart contracts.

Chainlink Adapter – The Chainlink Adapter is capable of reading and writing down the data on the blockchain that is received from the nodes. It plays the role of a bridge between external data and nodes.

The Chainlink core makes the programming language easily understandable for a real-world data source with the help of Chainlink Core Software. The application programming interface (API) collects data from the source after receiving the request. From this point, the Chainlink aggregating contract validates data received from multiple sources.

If the majority of the nodes have delivered one answer while a few have delivered a different answer, the system will consider the different ones as faulty answers. The aggregating contract can either collect data from a single node or from a set of nodes. The data is then transferred to the blockchain network for further processing.

Chainlink and Defi

The High-quality oracle services have become quite popular because of the significant adoption of decentralized finance (Defi). Most of these projects require external data to properly execute their smart contracts. These platforms can easily become a victim of cyber-attacks if they rely on centralized oracles for data compilation.

Many Defi projects have already faced the consequences of using such oracles. Chainlink is the right solution to the problem as it provides a decentralized solution to collect data for Decentralized Finance apps. It delivers the most accurate data quickly and efficiently.

Who are LINK Marines?

LINK Marines are the community members of the Chainlink project that are either token holders or node operators. These community members can communicate with each other on different platforms. And they can also collect information about the latest updates on the project.

What are the Use Cases of LINK Token?

LINK is the native token of the Chainlink project. With a circulating supply of 467 million coins, it has a market cap of $6.5 Billion. It has a total supply of 1 Billion tokens. The remaining tokens will be released to the node operators over time.

Transaction Fee – The transaction fee is one of the major uses of the LINK tokens. The users need to pay the LINK token when they initiate a request for external data. A portion of the transaction fee is transferred to the node operators for providing reliable data. The remaining tokens are burnt to maintain the supply.

Staking – The node operators need to stake their LINK tokens when bidding for a data request. They can earn rewards for providing the right data. But they may also lose their tokens if they performed any malicious activity.


Chainlink has a significant contribution to decentralized finance as it acts as a bridge between blockchain and external data sources. It provides accurate external data with the help of oracles without affecting the security of the network. If you need more information about how Chainlink works, feel free to leave a comment.

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