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  • Writer's pictureJoy Yuan

Chainlink: The Bridge Between Blockchain and Real-World Data

Blockchain, despite all its advantages, has limitations. The main benefits of blockchain are decentralization and security. However, these blockchain networks are isolated from the internet. Closed systems are extraordinarily secure, yet they are limited in functionality. While this helps to maintain the integrity and security of the technology, it restricts data input.

For this reason, closed decentralized systems require third-party connections to the outside world if they require external data. For a closed system's integrity to remain intact, more than one data source is required. Otherwise, centralized sources could alter data weakening the data integrity of the blockchain. Chainlink solves this problem.

What is Chainlink?

Chainlink refers to a Decentralized Oracle Network (DON) that helps link blockchain platforms with off-chain data resources. This network enhances the capabilities of smart contracts by allowing access to off-chain data while keeping blockchain technology secure.

While blockchain does an exceptional job of providing a decentralized, secure ledger for online transactions, it could be more effective in accepting input from external data sources. Some external forces that impact markets include credit cards, fiat currencies, sports scores, weather, and more. The Chainlink DON provides real-world data to smart contracts, which helps blockchains accept data from different inputs.

One of the downsides of Bitcoin, the first cryptocurrency, is that it only responds to a limited number of inputs. However, newer blockchains like Ethereum can run complex computer programs and respond to multiple data sources.


Chainlink was created in 2014 by Santhosh Palaveshwaran and Sergey Nazarov; however, it was in 2017 that it came to fruition. In February 2017, the creators published a whitepaper about the Chainlink Decentralized Oracle Network. The network officially launched in the same year, with the initial plan to create a blockchain that linked smart contracts and other blockchains. Today, the network works with many other tools and continues to grow.

Chainlink is beneficial to blockchain technology in many ways. Tokens, also known as LINK, make the DON work seamlessly. Users who supply the correct data while using Chainlink to access APIs receive LINK tokens. LINK token rewards incentivize providing valid and trusted data.

Why is Chainlink a vital technology?

There are many benefits of Chainlink. The DON has a wide variety of use cases in different global industries, making it a fantastic technology for businesses looking to improve their functionality and use of blockchain without integrating a new chain. Companies that can benefit from this network include stock exchanges, financial institutions, and many others.

Companies can effortlessly interact with various blockchains using Chainlinks that use smart contracts as a service (scaas). In simple terms, Chainlink technology allows companies to develop chainlinks that work for them. In addition, Chainlink works well with other blockchains like Ethereum and IOTA.

Chainlink Use Cases

Chainlink has several financial use cases:

Traditional cryptocurrency payments

The standard chainlink smart contract links blockchain and other payment systems. It allows users to pay for products and services in Bitcoin or Ether.

Escrow services

Smart contract escrow services are increasingly becoming popular. These smart chainlink smart contracts only release payment once both parties have fulfilled their end of the contract. Escrow smart contracts are advantageous when facilitating agreements between several parties, which could involve business deals, contracts, and many more.

Bank loans

This chainlink smart contract type involves interest and collateral. Chainlink loan smart contracts assist by removing the financial intermediary and executing the loan contract until the end of the agreed-upon term.

LINK token

LINK is a currency token used to pay for services on the Decentralized Oracle Network. Ethereum smart contracts can connect to other applications and payment systems through this network. Node operator's compensation is possible using LINK tokens for recovering valid data for smart contracts. LINK token is an ERC-20 with the added functionality of ERC-223, developed to improve ERC-20. Holders must stake LINK Tokens into the smart contract to provide data to Chainlink oracles. Doing this, activities such as submitting fake data result in a loss of stake.

How do chainlinks work?

The chainlink network involves two parties:

  • Purchasers

  • Data providers

The process of demanding data begins on a blockchain, and the smart contract sends a request for data. This process is known as requesting a contract. The chainlink protocol registers the request and creates a smart contract known as Service Level Agreement (SLA).

The SLA will generate three sub-contracts:

  • Reputation contract

  • Aggregating contract

  • Order-matching contract

When a user creates an SLA contract specifying data needs, Chainlink uses the contract to match the user to the right oracles. The oracle will then interact with outside sources to collect real-world data. The data will then be processed and sent to buyers through chainlink services. Data providers earn LINK token rewards for providing valid data.

What is Chainlink staking?

Chainlink staking is a security mechanism that allows users to receive rewards for increasing assurances and security guarantees of oracle services by staking their tokens.

How to stake Chainlink?

You can stake crypto using DeFi or CeFi. A Web 3.0 digital wallet is required. Using MetaMask as an example, here are the steps to follow:

  1. Go to MetaMask and click on the "add token" button.

  2. Find "LINK" and click "Chainlink Token."

  3. Copy your wallet address and go to exchange or cold wallet.

  4. Once you locate the LINK tokens in the wallet, click "withdrawal."

  5. Select how much you want to transfer to the wallet and click the LINK.

  6. Navigate to the LinkPool dashboard and link your wallet to LinkPool.

  7. Then choose Stake or Withdraw.

Final Thoughts

Chainlink's Decentralized Oracle Network (DON) provides essential services to the Blockchain industry. Pulling data from external sources and interacting with other blockchains is crucial. Providing valid and trusted data is complex, but Chainlink has solved this problem using LINK rewards and negative consequences for invalid data. Chainlink is considered a network that seamlessly integrates into smart contracts and allows cryptocurrencies to perform various functions without changing their underlying codebase.

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