Chainlink: What Is It and Why It Is Important in the Crypto World

Milko Trajcevski

Oracle solutions are not new to crypto as they perform the critical function of linking smart contracts with the required information it needs to execute. This piece aims to educate on the leading oracle solution, Chainlink and its role in blockchain and the cryptoverse. An introduction to the origin of smart contracts and oracle solutions is necessary before delving into Chainlink, its native token, how it operates and its utility to blockchains.

Understanding Chainlink

Blockchain technology has led to a boom in DeFi solutions as every day leads to a new step towards achieving perfect decentralized finance. The bitcoin whitepaper and subsequent blockchain indeed opened the eyes of many and catalyzed Ethereum and other blockchains and projects. As we already know, centralized finance is characterized by intermediaries, private and government controlling, monitoring and managing financial services.

This push away from this system came from the possible manipulation of financial systems by intermediaries and the bureaucracy involved in the management of users. Though centralized finance gave the world uniformity and global economic prosperity, clamour soon arose to do away with intermediaries leading to the end of market manipulation. Thus, although Bitcoin was the first blockchain, it was the Ethereum blockchain that led to the creation of dApps, decentralized applications powered by smart contracts.

A smart contract is a set of programs on the blockchain which becomes executed if certain conditions are met. Apart from blockchains being a decentralized public ledger to record transactions that cannot be manipulated easily, smart contracts are the real juice that makes blockchain leap to the world of DeFi. Therefore, it is not surprising to see new blockchains, including smart contract feature to host dApps.

Since DeFi pushes the notion of a world where financial transactions occur without monitoring centralized bodies, smart contracts are a perfect replacement. Smart contracts may be used by crypto exchanges, blockchain gaming, NFT marketplaces etc. Smart contracts are automatic; therefore, their functionality will depend on the information they receive to execute correctly. If a smart contract receives wrong information or data, it will execute in favour of the wrong party, and that defeats the whole purpose of DeFi.

Imagine a smart contract to execute when the price of BTC gets to $55,000, but before it gets to the mark it executes, it will cause problems for a party. Smart contracts which have bought full DeFi functionality cannot stand alone but need information on-chain or off-chain from oracle solutions.

Information on the blockchain would not be sufficient to cater to the ever-growing and complex smart contracts being rolled out daily. As a result of this, most of the information needed for a smart contract to function is obtained from external sources.

Chainlink and Its Utility

Chainlink is a decentralized oracle solution that allows smart contracts on the blockchain to interact with external data it needs to execute successfully securely. Founded in 2017, it was the goal of Chainlink to become the engine of smart contracts by providing all the critical information like prices, world events that can't be gotten from the blockchain (off-chain data) to smart contracts.

Chainlink as an oracle solution perfectly integrates with multiple blockchains and feeds them the required data without jeopardizing one for another. However, the problem with most oracle solutions is the fear that they can be manipulated while providing the smart contract wrong information.

A breakdown of this problem is that if a smart contract needs a weather report to execute and the oracle gathers the wrong weather report for the particular day, the smart contract will be executed in error.

To mitigate this problem, oracle solutions have come up with methods. However,v Chainlink is far ahead of others that have earned the trust of blockchain developers. In addition to being an oracle, Chainlink is an oracle aggregator making it challenging to come up with incorrect information.

Chainlink gathers information from several other Oracle providers and uses its internal mechanism to check for similar repetitive answers and dissenting answers. Then, Chainlink pays these oracle providers and strikes the ones with a wrong answer, going as far as seizing their tokens.

Chainlink has gained the trust of many partners over the years, including AAVE, Synthetix, Arbol, etc. Chainlink currently offers market data, sports data, weather data and makes the process easy by smart contract developers simply applying a "Get Request"—the result of Chainlink points to its perfect interoperability between on-chain and off-chain applications.

The utility of Chainlink stretches to the tamper-proof input and output data feeds and its perfect organization, making it possible for developers to get a grasp of the whole process quickly.


Link is the native utility token of the Chainlink network. Link is an ERC 20 token that is used to compensate node operators for their services. For example, blockchain operators need Link to seek information for their smart contracts from Chainlink.

The Link tokens go to the Chainlink node operators for their services. Chainlink prides itself in being a decentralized oracle solution and aggregator, so Link makes the network functional.

The amount of Link paid by a smart contract developer to a node operator is set by the node operator depending on what it costs the node operators to get the off-chain data. As a result, the amount of Link paid isn't fixed but fluctuates depending on the data. While this is a good model for node operators and the community behind Link, the burden is borne by smart contract developers.

Link can be gotten from CoinSpace and crypto exchanges. As an ERC 20 token, it can be stored on almost every wallet that supports Ethereum tokens. Link is ranked 14th in CoinMarketCap with a market capitalization of $12,401,066,558. There will be a maximum of 1,000,000,000 Link tokens with a current supply of 419,009,556 tokens.

How Chainlink Works

Providing smart contracts with off-chain information is not as complex as it may seem. Chainlink has made the process easy, with steps broken down to guide the developer and node operator. The process kicks off when a smart contract requires information "Requesting Contract" for information. Once the "Requesting Contract" is made,

Chainlink registers it by creating another smart contract called an SLA contract ( Service Level Agreement Contract). This new smart contract further generates three (3) sub contacts that carry out the entire process. The subcontracts are; The Chainlink Reputation Contract, The Chainlink Order-Matching Contract, and the Chainlink Aggregating Contract.

The Chainlink Reputation Contract:

The authenticity of the information judges an oracle solution it provides to the smart contract to function correctly. The Chainlink Reputation Contract looks at the track record of the oracle provider. It has a negative history of incorrect answers; it will not be accepted as only reliable nodes are accepted.

The Chainlink Order-Matching Contract:

At this stage, the "Requesting Contract" is matched with the most suitable node operators. Next, Chainlink takes the node operators' bid and puts it to account, then selects the number of nodes required to work on the request.

The Chainlink Aggregating Contract:

This contract receives all the data from node operators and filters it to know the right and wrong answers. Thus, this contract can validate data from both single and multiple sources.

From multiple sources, most times, the average principle is used. If four nodes deliver a particular answer and one node delivers another answer, the four nodes were right, and the one node with a different answer is wrong. Chainlink rewards node operators for this process with Link and punishes faulty nodes by withholding their tokens.

Chainlink's Achievements in Crypto.

The creation of Chainlink has been for the overall interest of blockchains. Blockchains need off-chain information gotten from oracle providers to function. Since the creation of Chainlink, it has received a growing adoption in the market, with different blockchain firms like Aave, Synthetix, Arbol, etc., adopting it. Chainlink now receives information from many reliable sources such as Google, CoinMarketCap, Brave New Coin, etc.

Chainlink currently partners with Google to provide weather information to smart contracts on blockchains. The effects of bad weather have led to the loss of money. Smart contracts can help predict the weather and the feasibility of an investment considering weather reports. Chainlink currently partners with Google Cloud to provide the required data to the smart contract.

In addition to this is the live market feed that Chainlink receives from CoinMarketCap and Brave New Coin. Chainlink is building a "billion-dollar" bridge to connect hundreds of blockchains while providing them with the necessary data.


Chainlink is at the forefront of oracle solutions in the market due to its efficiency and reliability. As long as decentralized finance keeps breaking into new areas, oracle solutions will keep growing to feed more data to smart contracts. So far, the growth of Chainlink has been commendable as Sergey Nazarov and his team have been rolling out new developments to keep it way ahead of the competition.