What is a Chainlink?
Chainlink is a decentralized network of oracles that enables smart contracts to interact securely with real-world data and services that exist outside blockchain networks. Using it, ‘traditional’ systems can connect to the blockchain industry to gain more security and efficiency. Chainlink is now a key component of a lot of blockchain applications and can be positioned as a kind of ‘Decentralized Internet’, allowing smart contracts to interact with the ‘real world’.
How does it work?
When a user requires some off-chain data, the request is sent to an oracle or an oracle network, on the SLA level, via the Chainlink protocol. The Chainlink picks the proper oracle / oracles, relying on the request data. Then the request is processed with the help of LINK tokens. The selected oracles analyze the request data, fetch the needed off-chain data (via API or another source of information), convert it to a proper data format and deliver to the blockchain.
Chainlink provides security on a number of layers and ensures users high reliability of the oracle or oracle network. Its features include:
- Generalized architecture. The framework is flexible to create and run customized oracle networks. Users can operate these oracle networks without relying on other oracles / oracle networks.
- Data signing. Chainlink oracles sign all the data they operate on with a unique cryptographic signature.
- High quality data. It supplies smart contracts with data from any external system and helps them send instructions to other systems.
- Blockchain agnostic. It runs natively on any blockchain without looking over at other blockchains.
- Service-level agreements. Chainlink helps users to define specific terms of the oracle operations requested by on-chain contracts.
- Reputation system. Users can choose oracle depending on its historical performance metrics (e.g., time of response, average security deposit, etc.), while node operators can provide additional data (e.g. their identity, geographic positioning, etc.)
And other helpful features.
Use Cases of Chainlink
A good deal of Chainlink use cases has been outlined, among which are:
- DeFi. Chainlink is used with private assets, interest rates assessment and in other cases, concerning functions like automation of the insurance of dividends or option contract settlement.
- Insurance. Chainlink is used to provide correct and up-to-date weather data (Arbol Crop insurance market)
- Gaming. Chainlink is used for randomness solutions (VRF) to generate it and bring around to the smart contract for the sake of the inability of anyone involved to manipulate the randomness on their own accord.
- Traditional Systems. Chainlink helps traditional systems (IoT, websites, etc.) to ‘adjust’ their services to any blockchain network.
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