The technology of Chainlink aims to tackle one of the key challenges in implementing smart contracts, which is connecting blockchains to real-world data

What is Chainlink?

Chainlink has developed a secure method of transferring data into and out of a blockchain while preserving its decentralized nature. Oracles, which are data sources that connect the blockchain to the real world, no longer have to be a single point of failure for smart contract applications. Chainlink has established a network of nodes to enable data transfer to and from the blockchain, thereby establishing a critical component of smart contract architecture. This "blockchain middleware" allows Chainlink oracles to provide essential information such as price feeds, event results, and connections to legacy payment systems while maintaining decentralization and security.

The operation of LINK began in 2017. The concept originated from a previous experiment conducted by its parent company, SmartContract.com. They had previously attempted to create a decentralized oracle solution for blockchains but were unsuccessful. Centralized oracles are considered untrustworthy because if they provide incorrect data, it will be permanently recorded on the blockchain without any means of correction.

Blockchains are designed to derive their data from information stored within the blockchain, which enhances their security and resistance to tampering. However, smart contracts may occasionally require off-chain data from the real world. External data, such as fiat currency exchange rates or any other type of external data, can only be incorporated on-chain through oracles like Chainlink.

Features of Chainlink

One of the main obstacles to the widespread adoption of decentralized apps is their inability to interact with data that is not included within the blockchain.

What does Chainlink solve?

To truly understand the significance of Chainlink, we must first explore two important concepts: Oracles and smart contracts

• Oracles are centralized third-party devices that are not part of the blockchain's consensus system. This makes them untrustworthy, as there is no way to guarantee the accuracy of the information they provide, thus negating the benefits of blockchain technology. For example, a smart contract might perform an action based on inaccurate or outdated data.
• Smart contracts are two-party agreements that can execute and enforce themselves autonomously and independently, without the need for intermediaries. They do this by converting contract terms into computer language scripts.

With these two concepts in mind, smart contracts are unable to interact with external real-world data and systems without the help of centralized, untrustworthy third parties. Chainlink fills this need by acting as a decentralized intermediary, connecting smart contracts and real-world data without the need for counterparty risk.

Understanding how it works

The Chainlink blockchain is powered by three types of smart contracts.

• The Chainlink Reputation Contract verifies the validity and performance history of an oracle provider and then evaluates and eliminates disreputable or unreliable nodes.
• The Chainlink Order-Matching Contract communicates the request from the Requesting Contract to Chainlink nodes and solicits their bids (when the Requesting Contract does not specify a specific set of nodes) and then selects the appropriate number and type of nodes to fulfill the request.
• The Chainlink Aggregating Contract collects data from the selected oracles, verifies and/or reconciles it to provide an accurate result.

Chainlink is a protocol that connects the blockchain to other environments. The process begins when the smart contract makes a data request, which the protocol logs as an event, thus creating a Service Level Agreement (SLA). Here is the process:

• Oracle Selection: Users of Chainlink create a service-level agreement (SLA) outlining a set of desired data requirements. The system then matches the user with oracles that can provide the data based on the SLA. The user then submits the SLA and puts their LINK cryptocurrency in an Order-Matching contract that accepts bids from oracles.
• Data Reporting: This is the process by which the oracles connect to external sources and obtain the real-world data specified in the SLA. The oracles then process the data and send it back to Chainlink contracts.
• Results Aggregation: The final stage involves aggregating the results from the data oracles and returning them to an Aggregation contract. The Aggregation contract collects the responses, verifies their authenticity, and provides the customer with a weighted score calculated from all the received data.

Through this process, Chainlink has created an efficient way to provide reliable and accurate off-chain data to smart contracts.

What is the unique selling point?