Chainlink's purpose is to enable different blockchain networks to collaborate with each other. It is a decentralized network of nodes and servers built on the Ethereum blockchain, but it is not limited to that chain alone. Through Chainlink's distributed software, data and information from off-chain sources can be added to on-chain smart contracts via so-called oracles. Chainlink therefore connects smart contracts with real-world data, bridging the gap between the blockchain and the real world. Chainlink is primarily used in DeFi (decentralized finance) and decentralized applications, but other industry sectors can also utilize Chainlink's functionality.
The cryptocurrency within the Chainlink network is called LINK, and it is used to reward the oracles (validator nodes) in the network for their work. You do not need to participate in the network and become an oracle to invest in LINK; anyone can buy and sell LINK. LINK is built on one of Ethereum's token standards, ERC-20, and it has a limited supply of one billion units. These were distributed through a so-called ICO (initial coin offering) in 2017.
One of the major applications of blockchain technology is smart contracts, which allow people to enter agreements that are automatically executed when specific criteria are met. These contracts operate on the blockchain, making them protected from manipulation. Problems arise when smart contracts need to access external data, outside the blockchain. Blockchains do not have an inherent mechanism to retrieve off-chain data, such as pricing information, weather data, or other events. Another issue is that data from third-party APIs is not always accurate.
Chainlink solves this through a technical solution involving decentralized nodes, known as oracles, which collect accurate external data. A smart contract is linked to the information source, i.e., connected to a centralized oracle. Through Chainlink’s oracles, the information can then be fed into smart contracts and subsequently distributed on the blockchain.
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Chainlink’s website: https://chain.link/
Chainlink’s white paper: https://chain.link/whitepaper