What is Chainlink cryptocurrency? How does it work?

What is Chainlink cryptocurrency? How does it work?

Chainlink (LINK) is a cryptocurrency project with a vision to incentivize a decentralized, global network of oracles across countless computers to provide reliable real-world data to smart contracts running on various blockchains.

These real-world data points that can be connected to blockchain-based smart contracts are known as “oracles.” Each oracle within the Chainlink decentralized oracle network is incentivized to provide accurate data with a reputation score assigned to each. When oracles follow the rules of the software and provide useful (accurate) data, they are rewarded with the Chainlink network’s native ERC-20 cryptocurrency token, LINK.

Interested in Chainlink, but not sure what it is or where to start? Do not worry. This guide is designed to teach you everything you need to know about the project and prepare you to jump into the most user-friendly trading experience available on the market.

What is Chainlink (LINK)?

Chainlink is a decentralized oracle network. The external data providers that share the work on the network are what are called “oracles”. These oracles allow Chainlink smart contracts to receive accurate data from external (non-blockchain related) sources, such as any type of API and some other types of external data sources. LINK is an ERC-20 token used to pay for and ensure the accuracy of this oracle service on the Chainlink network.

Chainlink takes the capabilities of smart contracts to the next level, enabling access to real-world data, events, payments, and more without sacrificing the security and reliability that is inherent in blockchain technology.

First created in 2017, the Chainlink team has been able to deliver on their vision of providing accurate external data to the blockchain. Although it originated from Ethereum(ETH), Chainlink has been designed to work on any blockchain that has smart contract functionality. Chainlink does not operate its own blockchain, rather it is interoperable and works on many different blockchains simultaneously.

How does Chainlink work?

To enable communication between the blockchain-based smart contracts it services and external data sources, Chainlink follows an innovative three-step process:

Oracle Selection: A Chainlink user drafts a service level agreement (SLA) that specifies a certain set of data requirements. Chainlink’s software then uses this SLA to match the user with the most suitable oracles that can provide the data. Once the parameters are set, the user submits the service level agreement and deposits their Chainlink (LINK) cryptocurrency into an order-matching contract, which accepts offers from the oracles.

Data Report – This step is where the oracles actually connect with the external data sources to get the real-world data requested in the Chainlink SLA. Oracles then process the data and send it to contracts using the Chainlink service. 

Result aggregation: The last step in the process is to count the results of the data collected by the oracles and return them to what is known as an aggregation contract. The aggregation contract takes the data points, evaluates the validity of each one and returns to the user (smart contract) a weighted score, using the sum of all the received data.

What makes this process especially powerful is how it allows Chainlink to validate data from multiple different sources. Thanks to its internal reputation system, Chainlink can determine with relatively high accuracy which sources are trustworthy, greatly increasing the accuracy of results and protecting smart contracts from various types of malicious attacks.

What role does LINK play in all of this? The smart contracts that request the data pay Chainlink node operators in LINK for their cryptocurrency development company. The prices are set by the node operators based on market conditions and the demand for that data.

Node operators also bring LINK into play to ensure a long-term commitment to the project. Like a Proof of Stake (PoS) consensus mechanism, Chainlink operators are incentivized with LINK rewards to encourage them to act trustworthy rather than maliciously.

What makes Chainlink unique?

The Chainlink project has many unique aspects. 

The ChainLink network is part of this architecture, connecting all the nodes with each other. Each of these nodes then connects to the pools via APIs to collect responses from each contract using the Chainlink service.

What gives Chainlink value?

Chainlink node operators can bet on LINK as a way of offering an offer to the intended buyer of the data. The node operator must then provide the information to the requesting contract. All payments for operators are made in the form of LINK tokens.

Owning more tokens means access to larger and more rewarding data contracts. If a trader decides to break the rules, their LINK tokens will be withdrawn.

As you can see, the LINK token helps pay network operators. The value and demand for these LINK tokens largely depends on the number of operators working to secure the network, but the token also derives its value from the various other use cases of the decentralized network of oracles. The more use cases the Chainlink platform can have, the more valuable the LINK token will be. 

How many Chainlink (LINK) coins are in circulation?

Chainlink has a maximum supply of 1 billion LINK tokens. 35% of the supply was sold during the ICO in 2017. The rest has been allocated to the team for future Cryptocurrency development company, or sent to network nodes to incentivize the decentralized network of oracles. The circulating supply is 410,009,556 LINK.

Unlike many other crypto assets, LINK does not have a process that increases its outstanding supply.

How to use Chainlink?

Holders of the requested contracts use LINK to pay node operators for their work in providing the necessary data. Prices are set by the Chainlink node operator based on the demand for the data they can provide and the current market for that data.

Chainlink node operators also use LINK as their stake in the network: Node operators deposit LINK to demonstrate their commitment to the network and incentivize good service, while ensuring that they will be penalized for malicious or cryptocurrency development company ( in the form of loss of your staked LINK).

Chainlink’s reputation contract uses the size of a node’s LINK stake (along with other factors) when purchasing data to fulfill a contract. Nodes with higher stakes are more likely to be chosen to fulfill requests (earning LINK tokens for their services).