November 10, 2020

Chainlink: Decentralizing The Oracle

Okereke Innocent

This article provides you with a comprehensive explanation of Chainlink and an in-depth analysis of its architecture. You may have heard about Chainlink and you are wondering what the concept is all about. Now is the time for you to understand all you need about this concept and how you can benefit from it.
If you don’t know what a smart contract is, it is a programmed agreement designed to self-execute once certain conditions are met. The deployment of these smart contracts was not only in the creation of novel crypto-financial products. But, also in the development of new crypto assets. Over the years, there has been the issue of reliance on smart contracts on the external data sources to properly and effectively execute their terms.

For instance, a smart contract seeking to replicate insurance agreements may need access to APIs reporting on market prices or the Internet of Things (IoT) data. Data providers (called oracles) gain incentives so that Chainlink can solve this issue. These oracles serve as a bridge between Blockchain smart contracts and external data sources.

What Is Chainlink?

In simple terms, we can define Chainlink as a decentralized Oracle network that offers real-world data to smart contracts. It has a digital token called LINK. You can use LINK to pay for services on the network. Chainlink provides developers with a robust mechanism to connect and interact with the outside world. The network provides reliable tamper-proof inputs and outputs for complex smart contracts.

It works on a network of independent node operators to provide unique integrations. These node operators earn rewards with the LINK tokens for undertaking verifiable honest and high-quality work. The node operators can go through punishment for dishonesty or providing a result of poor quality. Chainlink provides reliable and real-world data to smart contracts that run on Blockchain systems.
All oracles within the Chainlink get incentives to provide accurate data. Since a reputation score is assigned to each of them. Whenever nodes follow the software’ rules to provide useful data, they gain rewards in Chainlink’s native token called LINK.

Who Developed The Chainlink?

The Chainlink network went public in June 2017. The launching of the first version was in the same month. The company co-founders, Steve Ellis and Sergey Nazarov published the whitepaper in September 2017. They later held an initial coin offering (ICO). It raised $32 million by selling 35% of the I billion unit supply of Chainlink’s cryptocurrency (LINK).

30% of the remaining tokens were distributed to Smart Contract and was to be used for the development of the Chainlink Blockchain. Also, 35% went to incentivize node operators.

What Is Chainlink Architecture?

Now let us discuss the Chainlink architecture. Three different smart contracts power the Chainlink smart contract. These smart contacts include the following:

Reputation smart contract

This particular smart contract verifies the integrity of an oracle by looking into its record. The track records include the total number of complete requests, average response time, and the amount of Link cryptocurrency the oracle staked.

Order-matching smart contact

This helps to match a smart contract’s service level agreement (SLA) with the best bidding oracles. By implication, it helps contract to reach agreements on the protocol.

Aggregating smart contracts

It collects data from various oracles. Then, it matches the most accurate result with the smart contract that needs them.

How does Chainlink work?

As we have stated earlier, everything starts on a smart-contract-enabled Blockchain when the smart contract requires data. The smart contract initiates a request (Request Contract) for information. Immediately, the Chainlink protocol registers the request as a corresponding smart contract (Chainlink Service Level Agreement (SLA) contract) on the Blockchain to get this off-chain data. This Chainlink SLA also generates three sub-contracts. They are the Chainlink reputation contract, a Chainlink Order-Marching Contract, and a Chainlink Aggregation Contract.

It is the job of the Chainlink reputation contract to check the track record of the provider. This is for the purpose to determine its authenticity and performance history. This contract also helps to evaluate and discard unreliable and disreputable nodes. Afterward, the Chainlink Order-matching Contract takes the request of the Requesting Contracts to Chainlink nodes. Also, it takes their bids on the request. It then selects the right number and type of nodes to bring the request to fruition.

Now the Chainlink Aggregation Contract takes all the data from the selected oracles and validates/reconciles it to have an accurate result. Once this is done, the Chainlink nodes take the Requesting Contract’s request for data and use “Chainlink core” software to translate that request from on-Blockchain programming language to an off-Blockchain programming language that a real-world data source can comprehend.

The newly translated version of the request is routed to an external application programming interface (API) that collects data from the originator. Once it has been collected, the data is translated back into the on-Blockchain language via Chainlink Core and it is sent back to the Chainlink Aggregating Contract. The interesting part is that the Chainlink Aggregating Contract can validate data from a single source and different sources as well.

Therefore, if five nodes deliver answers from a weather sensor and one other node delivers a contradictory answer, the Chainlink Aggregating Contract will know those nodes are dishonest (faulty) and discard their answers. In like manner, Chainlink codes validate data from a single source. This validating process repeats for multiple sources, and reconcile all validated data by averaging into a single piece of data.
Meanwhile, it is important to know that Chainlink also interacts with oracles that operate outside of its Blockchain.
The nodes have two major components:

Chainlink Core

It is responsible for new fixes of SLAs (Service level agreements) and also routing assignments to the Chainlink Adapter.

The Chainlink Adapter

It acts as the bridge existing between the node and the external data. They can read and processes to enable them to write it to the Blockchain.

What Is Chainlink Token (LINK)?

LINK is the native cryptocurrency of Chainlink that is built into the network and serves as the only currency permitted on the network for key operations. For instance, LINK is used to pay node operators that help retrieve data. It serves to moderate interactions between Chainlink uses.

LINK is also serving as a deposit required by the smart contract creators and paid by the data providers (oracles). Notably, the reputation of an oracle is hugely dependent on the amount of LINK in his/her possession. Same as many other digital currencies, LINK has a limited supply. It means that there will ever be 1 billion LINK.


Chainlink, launched in 2017, allows chains of smart contracts on the Blockchain. It comprises aggregator, order matching, and reputation smart contracts to enable automated agreements on the Blockchain. There is no doubt that Chainlink has great prospects and potential, but we all have to observe objectively before making a dive into this new frontier.

Also Read, A Deep Dive Into Ethereum 2.0: The Potential And Prospects.

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