On September 4, 2017, the groundbreaking Chainlink whitepaper co-written by Steve Ellis, Ari Juels, and Sergey Nazarov was released into the wild.
About 2 years later, On May 30, 2019, Chainlink (LINK) – a decentralized oracle network that reliably connects smart contracts to the outside world – went live on the Ethereum mainnet.
Shortly after its mainnet launch, Chainlink’s decentralized oracle network was rapidly adopted and integrated into hundreds of blockchain projects. Its ability to provide reliable, secure, and tamper-proof data/price feeds into blockchain applications was unprecedented.
Fast forward to today, and Chainlink continues to dominate the oracle network and smart contract connectivity space and has become one of the most commonly used projects in the cryptocurrency space:
What is the (Oracle) Problem?
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The blockchain oracle problem is one of the most critical barriers to overcome if we’re to realize the real-world potential of smart contracts and their mass adoption across a wide variety of markets and use cases.
It’s such an important problem to overcome because if oracles allow corrupt data to be imported on-chain, auto-executing smart contracts can have disastrous effects.
Smart contracts are deterministic and will execute exactly as written, regardless if the data received is correct or not. Once data is reported to a blockchain, that data becomes an immutable part of its history and a smart contract may execute upon receiving that data and can cause irreparable damage.
That said, the first part of the oracle problem is the data itself. An oracle must use high-quality data from a reliable, secure, and authentic source(s).
Right off the bat, this proves to be a rather difficult problem to overcome. Ideally, you want your data to come from multiple high-quality and reputable sources. You don’t want your data to be centralized (coming from one source) as this can be a single point of failure.
A single source of data can be bribed, hacked, broken, or depreciated; which would compromise the decentralized nature of your smart contract.
The second part of the oracle problem is the oracle itself. You need to have a secure, trustless, and decentralized oracle network that cannot be corrupted or tampered with.
Again, this proves to be a difficult problem right off the bat because a reliable blockchain oracle must operate both on and off the blockchain simultaneously.
That said, blockchain oracles do not benefit from the security and decentralization of a blockchain network (ie. Ethereum or Bitcoin). Instead, they must create the same security and reliability guarantees of a blockchain, although in a different manner.
So, has anyone managed to solve the oracle problem?
Some people argue that no one has solved the oracle problem and believe that it’s next to impossible to build a truly secure, trustless, and decentralized oracle network. While this may be true to a certain extent, there is one thing for certain:
Chainlink (LINK) is the most commonly used, the most secure, the most reliable, and the most decentralized oracle solution the world has ever seen.
“Chainlink is the standard for secure and reliable decentralized oracles”
To back up this statement, let me provide some context:
DeFi on Ethereum exploded in 2020 with the launch of numerous financial dapps including DEXes, lending, derivatives, and payments products. This explosion in DeFi also came with an explosion of hacks stealing millions of dollars from a variety of projects due to poor oracle solutions.
But guess what?
Projects that used Chainlink’s secure and reliable decentralized oracles have never experienced such attacks. And now, after millions of dollars have already been stolen, such projects are making the switch to Chainlink to ensure these attacks never happen again.
Value DeFi experienced a $6 million flash loan attach due to a centralized oracle price feed:
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bZx Exchange lost over $2.5 million due to a bug in their oracle system:
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The above attacks due to poor oracles are just the tip of the iceberg. This month alone, Harvest Finance, Origin Protocol, Akropolis, Pickle Finance, and CheeseBank also suffered from attacks resulting in the loss of millions of dollars due to poor oracles.
To date, Chainlink’s oracles have never exploited, which reinforces its proposition as the standard for secure and reliable decentralized oracles
How Chainlink's Oracles Solve That Problem?
Chainlink solves the oracle problem by providing blockchain-based applications with a decentralized oracle network that can provide a multitude of different guarantees that can be used in any combination to provide customized oracle solutions for any use case.
One use case in which Chainlink’s decentralized network of oracles is commonly used is price feeds:
Chainlink’s decentralized price reference data (Source)
As seen in the image above, Chainlink’s decentralized oracle framework can be applied to price reference data – which is highly critical information for most every DeFi application.
The way Chainlink provides reliable price reference data is:
- Chainlink oracle nodes connect to premium off-chain data providers to ensure user contracts have access to the highest quality data. The pricing data Chainlink collects is specifically from aggregators that maintain volume-adjusted market coverage across all trading environments.
- To incorporate decentralization, Chainlink aggregates data from multiple independent oracle nodes to ensure the oracle mechanism is manipulation-resistant and highly available when delivering data to contracts.
- To enhance security, clients’ integrating Chainlink’s oracles are provided with on-chain insights into the current and historical performance of each oracle node and the decentralized oracle network as a whole.
Moreover, Chainlink introduces a multitude of other guarantees that can be combined to provide customized oracle solutions to any use case. Such guarantees and key attributes of Chainlink include:
Open-Source
Chainlink’s source code and functions can be independently verified as well as contributed to for improvement.
External Adapters
Chainlink oracle nodes can securely store API keys and manage account logins to enable smart contracts to retrieve data from any external system and API.
Decentralization
Chainlink employs decentralization at the node and data source level to ensure there are no single points of failure and to remain resistant to manipulation.
Data Signing
Chainlink oracle nodes cryptographically sign the data they provide smart contracts so that the information they provide can be transparently traced back to them, providing users with the node’s past history and performance quality.
Service Agreements
Chainlink oracle nodes provide enforceable guarantees by using binding on-chain agreements between the requesting smart contract and the oracle provider that outline the terms of the service with penalties/rewards for performance.
Reputation Systems
Chainlink oracle nodes have a variety of signed on-chain metrics like successful jobs, clients served, average response time, etc. so that users can make informed decisions about which nodes they want to use.
Certification Services
Chainlink oracle nodes can obtain any number of certifications that provide certain key guarantees like KYC, geographic location of the node, security reviews of their infrastructure, and more.
How Investors & Community Reacts to Chainlink?
Anon Link Marines
Aside from Bitcoin and Ethereum, Chainlink has one of the strongest communities out there. They call themselves the “Link Marines” and are largely made up of anon green frogs who are extremely resilient and will defend Chainlink to the death.
But don’t let this peculiar army of anon green frogs discourage you on the merit of Chainlink. Make no mistake, Chainlink is a legitimate project and is probably the only project in which other projects and companies integrate with at such a rapid pace.
For instance, Chainlink’s decentralized oracle network is integrated with and used by industry-leading teams and projects such as:
- Aave
- Synthetix
- Yearn Finance
- Celcius
- Ampleforth
- Arbol
- Nexus Mutual
- + So Much More
Moreover, in addition to leading the market in adoption, Chainlink was also the best performing crypto asset during the 2018 - 2019 bear market and continues to be a market leader in today’s bull market:
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As seen in the price chart above, $LINK is absolutely killing it with probably the strongest continued uptrend in all of crypto. That said, it’s too risky NOT to hold $LINK in your portfolio IMO.
All in all, Chainlink is a powerful decentralized oracle network and framework for connecting smart contracts to the outside world.
It’s already becoming the preferred standard for secure and reliable decentralized oracles and its use for more advanced cryptography (like zero-knowledge proofs) and hardware (such as trusted execution environments), has yet to be even realized.
That said, while Chainlink is already widely viewed as the most important project in crypto, things are really just getting started. Chainlink’s potential is truly extraordinary and the project is well on its way to fulfilling its vision.
