Chainlink uses a token called LINK. LINK is used to fund the growth of the project. There is a max supply of 1 billion tokens and currently around 450 million tokens in circulation. Its two main use cases are:

1. Pay the network to provide data
2. Staked by oracles to make sure they play nice and tell the truth.

First, what are smart contracts?

A smart contract is like a regular contract but elevated for Web 3.0. Smart contracts are usually written in code and stored on a blockchain. As they’re stored on the blockchain, once an agreement is made and signed, it is written in stone and stored on millions of computers around the world. So, it’s no longer your word vs someone else’s world, the evidence is there for everyone to see.

Smart contracts can be super simple. An example of one could be if I gave you $100, and you pay me back $5 every day. Or, I gave you $100 of Bitcoin, and you pay me back $5 every day in Ethereum. In these cases, the smart contract code can actually verify that both parties can fulfil the agreement. The smart contract will check to see that both sides have the $100 in the form they agreed to trade and automate the process. A more complex example could be: you give me $100, and I pay you back $5 every day in Bitcoin + 6% paid in interest paid in Ether.

The issue with smart contracts

Smart contracts work on blockchains. They can only look at past data- your account balances, and transaction history. This limitation of the blockchain, in turn, limits the capability of smart contracts. It's very difficult to connect outside information sources to the blockchain.

What if we could bond real-life data into the smart contract?

Introducing Chainlink (LINK)

Chainlink aims to create a network where data providers (Oracles) can be incentivised to provide truthful data to a blockchain. These oracles are essentially software that acts as middlemen for real-world data and smart contracts. We will go into more detail on oracles another time.

Chainlink is a decentralised network of oracles that provide data from the off-chain world and bring them on-chain and vice versa. This allows smart contracts to access real-life data in a secure reliable way. Imagine you are making an app for weather that keeps people up-to-date with the latest forecasts. The oracles are people who will report on the weather, if they tell the truth, (which will be determined by the consensus) the oracle is rewarded

That Chainlink is decentralised also tackles the reliability issues that come from centralised networks for obvious reasons… would you totally trust one source with important information?

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Understanding chainlink 

Chainlink basically replaces a bunch of middlemen. It does this by using lots of trustworthy people to gather data off-chain and bring it on-chain. How do we know these people are trustworthy? Well, Chainlink rewards people who give accurate data. The network is decentralised and has millions of data providers (oracles), who are all looking to be rewarded. The consensus of the majority will provide the correct answer and that correct answer will be verified millions of times over by the different oracles?

And, to be an oracle, you must lock up some of your LINK and say “I want to be a trusted source of data!” If for some reason they lie and are untruthful their money can be taken. And in return for staking their LINK, they earn interest. 

How Chainlink actually works

When someone wants a piece of data that isn’t already on-chain, like a game score, weather or price, they create something called a requesting contract. The chainlink protocol registers this request as an event. It will then set up something called a Chainlink service level agreement contract, which will create 3 more contracts.

1. First, it creates a reputation contract that evaluates an oracle’s track record and removes anyone deemed to be unreliable.
2. Second, it creates an order matching contract. It sends the request contract to potential oracles it deems fit to handle the request and assigns them to the request.
3. Finally, it sets up an aggregating contract that takes all of the data and determines which data set is correct.

Disclaimer: NOT FINANCIAL NOR INVESTMENT ADVICE. Only you are responsible for any capital-related decisions you make, and only you are accountable for the results.