Skip to content

What is Chainlink (LINK)?

Floating Chainlink tokens in front of blue background

Blockchain technology has been one of the great innovations over the past several decades. However, blockchain, like other technologies has its limitations. Some of these are hardwired, but others can be solved. Chainlink is an innovative oracle network that works to connect blockchains to real-world data, which was previously a large limitation of blockchain technology. This piece will explore what Chainlink is, how it functions, and what the LINK token is used for.

What is Chainlink?

Chainlink works to connect blockchains, which usually contain large amounts of information available only online, with real-world, or “off-chain” data. In order to understand what the Chainlink network is, it’s important to briefly explore what blockchains and smart contracts are.

Blockchains

A blockchain is a type of database that can store a range of different information across a decentralized network of computers. Currently, it is most frequently used to store information about cryptocurrency transactions.

Did You Know?

The first blockchain was the Bitcoin blockchain, created in 2009 by an anonymous developer, or group of developers, called Satoshi Nakamoto. After Bitcoin took off and the world saw the power of blockchain technology, thousands of new cryptocurrencies and blockchains were born.

Smart contracts

Smart contracts are computer protocols that perform a specific, pre-determined task. Their entire purpose is to facilitate the negotiation of a contract and ensure it is verified and enforced.  They work to ensure third parties aren’t needed to complete credible transactions.

Limitations of smart contracts

When smart contracts evaluate information on the blockchain, agreements are made to ensure the contract meets certain conditions. If it does, an order or set of orders are executed. This is a very powerful technology, however, smart contracts can miss a vital piece of the puzzle: off-chain or external data. They don’t typically have the means to connect “real world” information with what is immediately available on-chain.

How does Chainlink work?

When a smart contract seeks further information or data, the Chainlink protocol sends the request to various Chainlink nodes for their request “bids” and then validates that information. Chainlink was designed with an internal reputation system that allows it to determine with a reasonably high degree of accuracy the trustworthiness of sources.

Connecting off-chain and on-chain data

While Chainlink operates off the basis of smart contracts, it is able to extend its automation further. Chainlink is a decentralized oracle network that also allows connection to off-chain (external to the blockchain) data sources, ranging from external data feeds to APIs. Chainlink is decentralized, which means that instead of a single provider giving information to a smart contract, Chainlink utilises a broader network in an attempt to provide information from multiple external sources.

Tip

Off-chain data can exist in many different forms, but it might look like financial data or records, weather information, or even sports results for instance. These data points, and many more, were previously inaccessible by regular blockchains, but through Chainlink, there will be a bridge between blockchains and the “real world”.

Why Chainlink is important

As off-chain transactions are becoming more common, the importance of projects like Chainlink only grows. Unlike on-chain transactions, which require the consensus of a defined number of miners for the transaction to be considered valid, off-chain transactions are conducted a little differently.

For one, they are conducted outside the blockchain itself: this could be via, say, two parties having a transfer agreement. They may also include the exchange of private keys and unlike on-chain transactions, off-chain transactions happen instantaneously. The blockchain itself isn’t altered despite the transfer of ownership. Blockchain smart contracts alone would not have access to this previously ‘unseen’ but important information.

What is LINK?

The LINK token is the cryptocurrency that powers the Chainlink network. LINK is an ERC-20 token and the sole currency, which is used to pay for oracle services. LINK is built into the network itself, and its value comes from how it is able to ensure smart contracts are successfully executed within the Chainlink network.

You can buy LINK through the Swyftx crypto exchange with low fees and spreads. Swyftx is a popular crypto exchange in Australia and New Zealand that features a user-friendly desktop trading platform and mobile app.

Summary

In the Information Age, we’ve been increasingly shown that missing even a piece of the puzzle can have dramatic repercussions. This is where projects like Chainlink fit in. Chainlink offers benefits to the end-user through more efficient security systems, access to authentic (and multiple, sources of) data, and the potential for scalability. 

If you’d like to learn more about smart contracts, blockchain technology, or anything else crypto-related, there are plenty of great resources on Swyftx Learn!

Disclaimer: The information on Swyftx Learn is for general educational purposes only and should not be taken as investment advice, personal recommendation, or an offer of, or solicitation to, buy or sell any assets. It has been prepared without regard to any particular investment objectives or financial situation and does not purport to cover any legal or regulatory requirements. Customers are encouraged to do their own independent research and seek professional advice. Swyftx makes no representation and assumes no liability as to the accuracy or completeness of the content. Any references to past performance are not, and should not be taken as a reliable indicator of future results. Make sure you understand the risks involved in trading before committing any capital. Never risk more than you are prepared to lose. Consider our Terms of Use and Risk Disclosure Statement for more details.