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Chainlink is a decentralized oracle project that provides real-world data to the blockchain in the most secure way. LINK is a digital asset token circulating in the ne...


Chainlink is a decentralized Oracle project that provides real-world data to the blockchain in the most secure way. Chainlink builds on the implementation of basic Oracle principles and builds a virtuous cycle ecosystem around LINK tokens through economic incentives. The Chainlink oracle needs to be triggered by a transfer of the LINK token.


How Chainlink works?

Smart contracts are immutable and verifiable, using IF/THEN code logic, and are automatically executed when set conditions are met.

The data used to define the conditions of a smart contract originally came from the blockchain.

Recently, the blockchain ecosystem has introduced the concept of oracles, which transmit off-chain data to on-chain smart contracts.

However, centralized oracles can be problematic and therefore compromise the security and reliability of on-chain smart contracts.


Chainlink is a decentralized network of nodes that transmit off-chain data to on-chain smart contracts through oracles.

In this process, hardware with an additional layer of security is used to avoid the security risks that can occur with a single oracle.


First, smart contracts on the blockchain need to fetch data, so they send a data request (i.e., request contract).


The Chainlink protocol registers the data request as an "event", and then creates the corresponding smart contract (i.e., the Chainlink service level agreement contract) on the blockchain to obtain the off-chain data. The Chainlink SLA contract generates three subcontracts, namely the Chainlink reputation contract, the Chainlink order matching contract, and the Chainlink aggregation contract.


The Chainlink reputation contract looks at the historical service level of oracle service providers, verifies their authenticity and historical performance, and weeds out oracle nodes with poor reputation or low reliability.

The Chainlink order matching contract sends a request for data from the request contract to the Chainlink node, and accepts the node's bidding (in this case, the request smart contract will not select the node by itself), and then the order matching contract will select the appropriate number and type of oracles to complete the task.

The Chainlink aggregation contract takes all the data from the selected oracle, validates and aggregates the data, and finally obtains an accurate result.


Next, the Chainlink node receives the data request of the request contract, and uses the Chainlink core software to translate the on-chain data request into a programming language that the off-chain data source can read. The translated data request is then sent to an external API to fetch the data from the data source. After the collection is complete, the Chainlink core software translates the data into the on-chain programming language before sending it to the Chainlink aggregation contract.

After that, things started to get interesting. Chainlink aggregates can validate data from a single data source or multiple data sources; It also aggregates data from multiple data sources.


For example, if five oracles transmit results from the same weather sensor and two other oracles transmit different results, the Chainlink aggregation contract will identify the two oracles as problematic and will reject their results. This is how Chainlink nodes validate data from a single data source.


The Chainlink aggregation contract can repeatedly validate multiple data sources, and then aggregate all verified data into a single data by averaging it. In some cases, it is not possible to average the results, but here we will not discuss them in depth in order to simplify the narrative.


In addition to data sources, Chainlink has built a reliable and efficient mechanism to provide accurate data to smart contracts on the blockchain.


What is LINK used for?

The party initiating the data request will use LINK to purchase the services of the Chainlink node. Chainlink node operators set prices based on the user's demand for data and the market price of the data at the time.

Chainlink node operators will also use LINK as a margin to guarantee their service quality, and this mechanism will also incentivize nodes to improve service levels.

The Chainlink reputation contract takes into account the amount of margin of the node (among other factors, of course) when assigning tasks. Nodes with higher margins are more likely to be selected to provide services and earn LINK. The Chainlink network also confiscates security deposits from problem nodes to penalize them for providing low-quality services.

LINK is an ERC20 token on Ethereum that can be traded in fiat or other digital currencies

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