Cryptocurrency is fast gaining popularity globally. However, the industry is not without its pain points and challenges. Security, vulnerability, reliability are some of the challenges that plague the world of cryptocurrency.
The need for a decentralized system where control over digital currency belongs to everyone and not one entity drives developers to seek solutions. Chainlink comes in as a solution to some of these issues in cryptocurrency.
In 2019, Chainlink became one of the most popular cryptocurrencies on the block. Its purpose is to serve as the connection or link between different blockchains to make them interoperable. What are these blockchains? How does Chainlink fit into this picture? What exactly is Chainlink?
This beginner’s guide will answer your questions clearly and simply to help you make informed decisions as you explore the world of cryptocurrency.
Blockchain to Chainlink: The history and challenges
A blockchain is a decentralized network that computes, stores, and records data in a shared ledger. It is different from the traditional centralized system of networks in many ways:
- A single individual does not control it
- Anybody around the world has access to its control and can send it commands
- It records all transactions that it performs continuously in a ledger that is forever-growing
- All applications contained within it, including the data they store, are permanent; they cannot be erased.
- You pay for transactions carried out using native cryptocurrency.
While this is an innovative approach that improves transparency and instills honesty across the network, it’s not without its challenges.
To achieve the blockchain features we listed above, blockchains continuously interact with each other by running the same software on many computers to process the same transactions, record the same data and crosscheck among themselves to find out what is valid or not.
This continuous validating process becomes redundant, expensive, and its shared ledger difficult to manipulate. But blockchain remains a great solution for transparent transactions in the industry. It is reliable for data storing and computation between two parties.
It eliminates the risk that the other part would not hold up their share of a digital trade transaction or do not have enough resources to hold it up.
Usually, a third-party like a payment processor will do the background check on the counterparty. But with blockchains, you get a more reliable, unbiased system to settle your transactions because they carry out instructions exactly as you have instructed it.
Blockchains are developed in a decentralized system. This means that it can perform transactions for you between two parties without a third party taking custody of your money like banks.
Because of this, cryptocurrencies like Bitcoin continue to grow as strong currencies. No single individual can inflate or tamper with their supply. So, where does the challenge with blockchains lie?
Blockchains use certain sets of commands through applications running on the networks to trigger specific actions based on the occurrence of events. For instance, “if a hotel reservation is canceled, pay insurance of $50; if it is not canceled, do not make this payment.”
These applications that make this possible are known as Smart Contracts. The challenge with using this in a decentralized system is that they cannot function without data. To carry out the necessary commands, they need real-world data to finalize and automate agreements.
This type of data is not available on blockchains, and the Smart Contract cannot access external data on its own because it doesn’t have a means of connecting with the outside world. This challenge created the need to develop software known as ‘Oracle’ that would feed the blockchain the necessary info it needs to carry out commands.
However, a single source of information for the Smart Contract meant a few things; vulnerability, security, and counterparty risk; since the Oracle had complete, centralized control over the type of information, the blockchain receives.
The need for a decentralized Oracle to carry out this necessary purpose arose; enter Chainlink.
What is Chainlink?
Chainlink is the decentralized Oracle network to help feed Smart Contracts the necessary data they need to execute commands. Seeing as Smart Contracts cannot access information outside a blockchain, a Chainlink becomes an almost indispensable tool.
Through Chainlinks, the smart oracle can access information from a pool of resources such as APIs, market data, bank payments, events data, and many other resources and send it back to the blockchain to carry out a command.
Chainlink profers a safer and less vulnerable solution because it is decentralized, and information comes from many different sources. This way, no specific entity can influence the commands or instructions that are fed into blockchains.
In a nutshell, Chainlink carries external information back to blockchain applications like Smart Oracle and puts it on-chain in a nutshell.
How does Chainlink Work?
Let’s take a practical example.
If you’re looking to take a loan and need to determine the current price of a cryptocurrency so that you can use it as collateral, here’s how a Chainlink will help a blockchain application.
Chainlink sources USD price of BTC through many decentralized oracles and networks and sends it to blockchains through a BTC/USD price feed. A Blockchain application will then use the BTC/USD price feed to determine the current price of Bitcoin.
Chainlink works by using a decentralized network of oracles to gather data from many external sources, compile it, and determine a valid, single data point that it feeds back to the Smart Oracle. The Smart Oracle is triggered by this information to take action and execute a command.
This effectively removes the vulnerability of centralized data.
The Benefits of Chainlink
Chainlink offers many benefits for the cryptocurrency world, making it very promising for both the present and the future. These are some of the top benefits for major investors:
- Multiple layers of security: One of the main offerings of the Chainlink decentralized network is the trustworthy platform it offers. Its multiple layers of protection make this possible. Its generalized architecture structure makes it flexible to build oracle networks without depending on other oracle networks. It continues to provide more advanced security and reliability and develop more data privacy and security, ensuring the safety of using the network as it progresses.
- Provides access to high-quality data: Chainlink sources data from high-quality and premium databases to provide the Smart Contract with credible information to run with. The Chainlink oracle also signs the data it places on the blockchain with a unique cryptographic signature. This helps users of Chainlink identify the specific source oracle where it originates from. This makes it less complicated and tasking to validate data.
- Historical performance access: Chainlink allows users access to the historical performance of the Chainlink Oracle with the help of the signed data on-chain. With this information, users can choose their preferred oracle based on their performance in the past.
Is Chainlink a Good Investment in 2021?
Chainlink may be an excellent long-term investment for 2021 and beyond. The Link Token, which is the native token of the Chainlink, can be used to pay for services like node operators on the network. It is an ERC20, which means that it has an Ethereum base.
Its value rises the more use cases of Chainlink occurs, i.e., the more successful Chainlink grows, the higher the value of the Link Token. The higher the demand for Chainlink for Smart Contract services and other uses, the higher the price will go.
Crypto Rating’s prediction the price is expected to soar about 96% over the next six months. DigitalCoin expects it to climb up to $19 by the end of 2021. Judging by the current market situation, Wallet Investor predicts that the Link Token value can go as high as $24 in the next five years.
Where Can I Buy Chainlink?
If you want to invest in Chainlink, you can buy Chainlink on MoonPay. On MoonPay, there are numerous pathways through which you can own Link Tokens to trade or invest.
You can buy Link on MoonPay using any of your cards; Visa, MasterCard, and other major debit or credit cards. The platform also allows you to pay for your Link Token using any bank transfer. It will then be transferred to your ERC20 wallet.
You can pay for services on the Chainlink network using Link; for example, to use blockchain services on the network. GooglePay, Samsung Pay, and Apple Pay are also easy ways to buy Link Tokens for your use.
Chainlink opens up the world of blockchains to limitless possibilities—the security it offers, the decentralization of information sources, are all important for blockchain technology.
Based on the high-end solutions it offers and the many spaces you can find this technology useful, we think that Chainlink is worth monitoring. It is already starting to gain fast ground as the industry leader in blockchain technology with strong potential for the future. Before you take the step to invest in this digital currency, it would be worth your while to keep up with its trend and study the projections in-depth to understand its growth in the future. Their website, chain.link, is an excellent place to begin your study.