Centralized oracle services exist to provide web or mobile applications with data to execute their purposes. For example, Uber needs GPS data, driver and rider information, and payment information. These oracles provide this in APIs or data feeds, but they will not work on a blockchain.

Instead, decentralized applications created via smart contracts can use the Chainlink network to retrieve external data without compromising the blockchain. For example, players can enjoy truly random crypto gambling on the best crypto casino without worrying about biased code.

Here, we will answer a few questions, such as, what is ChainLink? How does it work? How do you buy it?

Additionally, we will look at several real-world applications of this decentralized oracle network.

What Is Chainlink?

Chainlink is a network of oracles that allow smart contracts to use real-world data and services that are not on the blockchain network.

Smart contracts require trustworthy sources of data to execute the conditions of the contract. Developers can use an oracle to achieve this. Oracles already exist as centralized services, where one source of information provides data to mobile applications and other web services.

This network uses multiple oracles to determine if data is reliable for smart contracts. This network uses multiple nodes on its network to compare data among oracles. The smart contract’s oracle creator receives an ERC-20 LINK token as a reward for processing the data.

Additionally, LINK, its native token, has been one of the best performing altcoins on the market. The founders launched an ICO in September 2017. It reached its cap at $32 million, but only 10% of the token were available for public sale.

Node Operators received an incentive of 35% of the tokens. Another 35% were sold in the pre-sale and public sale. The company kept the other 30% of tokens, which are reserved for project developers and staff. All in all, there is currently 350,000 000 LINK in circulation.

How Does It Work?

What Is Chainlink

Chainlink works in two parts. It has internal blockchain operations and external off-chain operations. Both parts need to constantly interact with each other to ensure that the provided data is reliable and conforms to the conditions of a smart contract.

The off-chain operations are made up of multiple nodes. They are attached to the Ethereum network and receive data from various external sources. Importantly, the nodes and the sources of data are independent of each other. This means that a single source of data cannot determine the efficacy of other sources.

Furthermore, these external sources of data can be pricing data on different cryptocurrencies or information from a payment protocol like PayPal.

The network is compatible with Bitcoin, Hyperledger, and Ethereum. However, it is worth noting that the network is actively expanding its compatibility with other blockchains.

Chainlink Relationship With Oracle

Off-chain data enters the network by request. When there is a request for external data, the network creates a contract. The contracts match the request with the relevant oracle. These contracts consist of three parts:

First is a reputation contract. It holds a record of oracle-service-provider performance and verifies its track record by providing accurate and reliable information.

Next is an order-matching contract. It records user proposals on the network, amasses bids from oracle providers, and selects the best oracle based on the analysis from the reputation contracts.

Finally, the aggregating contract collects all the answers from all the oracle providers and calculates the solution based on consensus.

The off-chain oracle nodes on the network collect responses to external data requests. The network uses multiple consensus protocols to summarize the data, which is accurate and reliable. It is the Chainlink Core that processes the summary. This device translates external off-chain data and sends it to the on-chain network. 

Why Is This Integration Necessary?

Smart contract technology, by design, cannot interact with external resources off-chain. This means that smart contracts can only access data on the blockchain it was created on.

Accordingly, smart contract developers are limited due to a lack of external connectivity. For example, a developer cannot create a smart rental contract if they do not have access to a tenant’s credit record or the property owner’s deed.

How To Buy Chainlink

Although APIs and data feeds already provide these sets of data for conventional app developers, it is not decentralized. And centralized oracles have their own issues.

For example, centralized oracles do not require a consensus on the reliability of their data. This means that a developer has to trust that their chosen oracle has accurate information. This is, of course, in direct contrast to blockchain technology and decentralization.

If a smart contract had to rely on a centralized oracle, it would undermine the integrity and security of the blockchain and the smart contract.

To illustrate, the oracle’s creator could manipulate data to achieve desirable outcomes from smart contracts. They could set the price of a particular cryptocurrency lower or higher than the actual price. The smart contract would then use this data to execute an agreement and disadvantage one or both parties.

How To Buy Chainlink

Users on the network use LINK to pay for oracle data and services. So, node operators can receive LINK as a reward. Additionally, users can also purchase LINK on trading platforms. LINK is available on Binance, EtherDelta, Huobi, and other popular cryptocurrency exchanges.

There are various methods to purchase cryptocurrencies, and LINK is similar. All users need are accounts and a currency to trade. These could either be a fiat currency (US dollar) or a cryptocurrency like Bitcoin.

Debit And Credit Card

On Coinbase, users can purchase LINK using a debit or credit card. Though they do incur additional charges, it is simple and convenient enough to justify the extra cost.

Firstly, users need to create a Coinbase account and send the platform KYC (Know-Your-Customer) information. This includes a government-issued ID and proof of address. Then users can add their preferred payment method.

Next, they need to access the “Trade” tab on the platform using their desktop or mobile phone. Then they should select “Buy” and choose LINK. If a user purchases LINK with a debit or credit card, the coins will immediately appear in their Coinbase wallet, but bank transfers can take up to 5 business days.

Cryptocurrencies

Buy LINK

Users can purchase LINK using cryptocurrencies on the Binance crypto exchange. This is the most popular platform for LINK traders because it generates over 22% of LINK’s global trading volume.

Users can trade their Bitcoin, Ether, and stablecoins (USDT, USDC) for LINK by creating a Binance account. Traders need to complete KYC if they intend to trade more than 2 BTC ($113,719).

First, they need to access their Binance wallet and use the “Deposit” tab to add their held cryptocurrency to their wallet. They need to copy the deposit address and transfer their coins there.

Next, they need to go to a LINK market and use the “Limit” or “Market” buy option. Once the trader finds a match, they can trade their crypto for LINK. Traders receive LINK in their Binance wallet.

Decentralized Exchanges

Users can also obtain LINK through a decentralized exchange like Uniswap. It is based on the Ethereum blockchain, so users can only use an ERC20 wallet and Ethereum tokens (ETH, ERC20 tokens). Uniswap allows direct wallet trading. This means that traders do not need to deposit or withdraw funds to trade.

First, traders need to connect their ERC20 wallet using the “Connect Wallet” tab on the UniSwap platform. They can then choose between V1 or V2.

Next, on the Swap page, they need to choose ETH in the “From” field and LINK in the “To” field. They then enter how much LINK they want to purchase. Next, they have to click the Swap button.

Once Ethereum confirms the transaction, LINK is deposited into the trader’s wallet.

LINK Uses

Node operators on the network retrieve data from off-chain sources, convert them into a blockchain format, provide off-chain computation, and ensure consistent network uptime. They receive compensation with LINK tokens.

The node operators determine the final price for their services.  They consider the demand for the external data source and the supply of relevant information.

How To Store It

Keeping cryptocurrency in exchange is risky for a few reasons. First, traders do not have complete control over what happens to their assets. A custodial exchange might use a trader’s holdings to make risky investments, possibly resulting in the trader losing all their crypto.

How To Store LINK

Additionally, crypto exchanges are major cybercriminal targets because they are always online and have access to sometimes millions of dollars worth of currency. Many exchanges have been victims of cyberattacks. Therefore, many of the more prominent crypto exchanges offer their users insurance from theft and fraud. Even with this, there is no guarantee that the exchange will return a trader’s funds after an attack.

Accordingly, it is better for any crypto holders to eliminate the risk of losing their funds. They can, instead, store their crypto in a wallet that offers cold offline storage of their crypto assets.

Mobile Wallets

Mobile wallets allow LINK holders to access and store their LINK on a mobile app. A user’s private keys never appear on the device, and wallet accounts can be transferred to other devices for added convenience, but being a mobile app, it is still prone to mobile hacks.

Web Wallets

Holders can also store their LINK in an Ethereum web wallet. They can use a wallet developed on the Ethereum network like MyEtherWallet. These wallets require a bit more configuration than mobile wallets, but they are safer because it is extremely difficult to perform malicious actions on a blockchain.

Hardware Wallets

Finally, holders can store their LINK on a hardware wallet. This is the safest option because these wallets never have access to the internet. This means that there is no way a hacker can access a holder’s private keys. The Trezor and Ledger hardware wallet devices are available to purchase on their respective websites.

Real-World Applications Of Chainlink

The network is the glue between oracle data and service providers, and blockchain technology. Combining external data sets and services to a secure decentralized blockchain has massive potential.

There are currently many real-world applications of the network, like providing exchanges with an ETH/USD Price feed, Decentralized Finance (DeFi) applications, Insurance, and Gaming.

Firstly, the Chainlink Price Feed aggregates prices of Ethereum using independent operator nodes on the network. Using consensus methods determines the most accurate price for Ethereum at any given time.

Real World Application

Next, DeFi applications like loans, payments, or futures trading use smart contracts to secure their transactions and create a trustless system. Of course, the network can provide data on interest rates, asset prices, and the market value of the collateral. These sets of data will help DeFi applications issue fair loans and issue share dividends.

Furthermore, the network provides weather data to the Arbol crop insurance market. This means that farmers can access parametric crop insurance across the world. The network aggregates metrics like the amount of rainfall, time without rainfall, and temperature. It can then send the data to the smart contract, which would then determine the insurance settlement due to the farmer.

Finally, developers have created smart-contract-based games on the blockchain. These games require randomness to fulfill certain gaming parameters or choose a lucky winner for a prize. Chainlink uses VRF. It generates randomness then sends it to the smart contract. Once it is sent, no one can alter it, making it a fair and trustworthy source of randomness.

Final Thoughts

The Chainlink network leverages external oracle service and data providers to enhance smart contracts’ capabilities on various blockchain networks.

Users and traders can purchase LINK using fiat currencies or cryptocurrencies on exchanges like Binance and Coinbase.

Real-world applications of the Chainlink include providing smart contracts with randomness data, data for insurance, DeFi, and crypto price feeds.

This network is the key to bridging the gap between decentralized applications and oracle data providers.