What does Chainlink solve? Components and Controversies in the Market

In the world of blockchain, one of the most vivid inventions is Smart Contract. It is a set of code that executes in the blockchain to store data, issue transactions and much more in a decentralized manner. Smart contracts have the ability to revolutionize processes like Escrow, Asset transfers because of the pure deterministic logical method by which they issue funds and perform actions. What it usually does is, for a certain input, a certain level of processes or steps are undergone only when the logical conditions are met. No party can consider breaking the terms in the mid of the process. Sometimes, not all data is internal and there are scenarios where external data need to be put in for the Smart Contracts to do their job, that is where Oracle comes into the picture.Oracles are trusted data sources outside of blockchain that provide data to smart contracts in the blockchain network. At its core, Chainlink is designed to provide a trusted decentralized oracle infrastructure and framework for Smart Contracts on multiple blockchains. It is comparable to a bridge between real world and blockchain network. An inbound passes data from the real world to blockchain and an outbound transmits data from blockchain to the real world. The goal is to provide viable tamper-proof inbound and outbound data on multiple blockchains that are used to build complex valuable Smart Contract ecosystems. The only project that could be considered a competitor is Mobius, so there is actually ample room for both of these projects to succeed in the market.

Chainlink was founded by Sergev Nazarov and Steve Ellis in 2013, the team heavily consist of Software Engineers and business development experts. Currently there are chainlinks on Ethereum that are up and running but it is not exclusive to Ethereum. More projects are in pipeline to support chainlinks in other blockchains. For the execution of Chainlink, there is a need for both on-chain and off-chain components. A chainlink network is really made up of several chainlink nodes who carry out data oriented jobs coordinated by the on-chain oracle contract. These oracle contracts uses Link tokens as an incentive to chainlink node operators to execute the specified job that smart contract developers’ contracts need to be done in terms of data feeds. These link tokens are also a financial deterrent from chainlink node operators to falsify data, accept jobs they can’t deliver and so on.

Market Retrospection

Chainlink went live on the main net in May 2019, 2 years after the ICO that raised a $32Million worth of Ether. Since then, chainlink’s growth has been exponential along with the valuation of Link token. Recently Chainlink announced a Community Grant program in 2020 to spike the growth of it’s ecosystem and has funded 19 different programs for research and development. In Sep 2020 MakerDao added chainlink as a collateral option to issue their DAI stable coin with more utility to the token. Early Oct 2020 WBTC (Wrapped BitCoin Token) on Ethereum partnered with Chainlink including proof of reserves. Nevertheless in late Oct, Chainlink launched a new product called Chainlink VRF (Verifiable Random Function)first of its kind, both On-chain and Off-chain VRF provided by oracle nodes by any developers for building gaming dapps on Ethereum.

During Nov 2020 the TUSD stable coin uses Chainlink on-chain proof of reserves. Next comes the Matic which is integrated to Chainlink next to Ethereum. By the end of Oct 2020, the cryptocurrency world was begging to integrate with chainlinks because dozens of D5 protocols were hit by a flash loan attack (an Arbitrage!) with a loss of 100$Million dollars worth of cryptocurrencies. Eventually, the lesson learned was to get price data, not from a single source that is still centralized and was prone to attack but to use from different dexes like oracle chainlink. Bingo ! for chainlink.

Components of On-chain nodes

Specifically on Ethereum On-chain chainlink is a series of smart contracts that allows developers to request data for their dapp through the aforementioned oracle nodes. The core functionality of the chainlink ecosystem is encapsulated on-chain within the oracle smart contracts. This chainlink oracle contract serves as the core interface for developers to interact with the off-chain chainlink node operators. The Oracle contract act as the bridge that connects the on-chain contracts and components developed by that developers to the data providing chainlink network nodes that reside off-chain. Another components is Custom contracts developed by the developers themselves that interact with the chainlink oracles. These can be called Consume Contracts as they consume data to integrate the core library of chainlink functionality and communicate with an oracle contract to send a job requests to the off-chain chainlink nodes.All jobs that are executed in the consume contract contains jobid, payment amount, data and address. This job id specifically contains the off-chain chainlink node that needs to handle the request subsequently. Apparently, there can be more than 1 Oracle contract on the network which allows the Oracle contract to choose which Consumer contract for the job. It also allows off-chain chainlink node to register themselves with the oracle contract to be able to decide where to go into the process.

The last component in the discussion is Link Token Contract, as mentioned earlier it is used to incentivize oracles to the field job request with rewards but also to deter oracles to these off-chain oracle nodes from performing poorly or acting maliciously in the network. There is 1Billion link token contracts in the market that is linked to ERC677 tokens and ERC20 tokens. What’s so brilliant is the unique functionality within the ERC token standard called TransferandCall that can execute a transaction in 1 step instead of 2 steps. Thus the ecosystem is made a lot more efficient and friendly.

Components of Off-chain nodes

Off chainlink is an ecosystem of oracle nodes that connect to cryptocurrency blockchain like Ethereum. At a high level, a chainlink oracle connects to the external data sources that might process the data according to the job specification set by a consumer contract. Then they provide the data back to the requester chainlink. Many chainlink nodes operate independently to process job requests. These are run by various operators at various data sources usually containing the following components such as chainlink core node, blockchain node, external data source and external adapters.

Link Tokens 

These tokens are used for 2 different purposes

  1. To pay for data feeds from the chainlink oracles and to establish penalties and deposits for bad actor oracles.
  2. Consumer contracts can request deposits of links to be made almost like a security deposit from a chainlink oracle as collateral until a job is done.

Chainlink- A Brute in disguise

Zeus Capital in Nov 2020, issued a $100,000 bounty on chainlink for those who offer proofs on illicit and manipulative practices. They believe that chainlink is one Ponzi scheme presumably for the damages incurred when they shorted the link in 2020. Later Zeus capital followed up with the claim that the link token will eventually be classified as a security by the SEC in the USA. If this is true, it means the chainlink will be given the same treatment as Ripple and the link token will be delisted from the US exchanges and dumped by large investors just like XRP was.

Another perspective on Zeus capital is, it is a “Short and Distort” scheme to bring the chainlink currency rate down by the insiders so, as much cryptocurrency can be bought while at low. Some say this is purely market manipulation that plays with the psychology of people in the crypto world.

Ultimately, Chainlink has partnered with WEF(World Economic Forum) and are interested in the public and private institutions. This leads us to believe in chainlink in the forthcoming years and its only a matter of time something fishy might come up. But the chainlink team’s opaqueness when it comes to funds could land them in a vulnerable spot.

What does Chainlink solve? Components and Controversies in the Market
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What does Chainlink solve? Components and Controversies in the Market
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