Yet if you go a little deeper in attempting to understand the allure of crypto, you eventually come upon the concept of smart contracts, and the essential role that oracles like Chainlink play in developing them.
The further you go into researching the potential value of smart contracts and oracles, the more you may find yourself seeing crypto as a sort of financial internet, and not just a store of value, akin to gold or silver in digital form.
What is a Smart Contract?
Smart contracts are agreements that are coded onto blockchain networks, such as Ethereum, that self-execute and thus do not require any participation from middlemen, arbitrators, or third parties of any kind. Since these agreements can come in an almost infinite variety, the immense future potential of smart contracts is hard to even conceive.
They can be used in a wide range of functions, including automating real estate sales, insurance claims, supply chain management, and escrow services. They can also be used for powering decentralized crypto exchanges, and for the creation and distribution of tokenized assets, including Non-Fungible Tokens (NFTs).
The secure processing and storing of sensitive and confidential data for the purpose of identity verification, document authentication, and other digital identity management is also something smart contracts can be geared towards.
Since smart contracts are stored directly on blockchain technology, all participants involved have the benefit of full transparency, cost savings, and efficiency. This is due to the absence of intermediaries and the high level of security that decentralized blockchains are known for.
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What is an Oracle?
Smart contracts are an exciting tool, but since the digital agreements coded within them often depend on data that exists outside of the blockchain, there needs to be an entity that can reliably bridge the gap between the smart contract and that outside data.
For example, if a smart contract is programmed to execute a series of financial transactions when the current market price of oil hits $150 per barrel, there needs to be an extremely secure source that tells the contract that the current price has in fact reached $150 and that the program needs to execute.
If the smart contract relies on only a single source of data to meet its conditions, it is vulnerable to tampering and erroneous data being provided. Because of this, smart contracts are provided with multiple data points from multiple and external data sources by way of decentralized oracle networks (DONs).
Chainlink is one of these oracle decentralized networks. External data is called off-chain data.
Chainlink uses a reputation scores system to measure and confirm the reliability and track record of each oracle in the system using historical data. The accuracy of the data being fed into smart contracts by the oracle network is the top priority.
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What is the Chainlink Token?
The Chainlink token is called LINK, and it serves multiple functions on the Chainlink network. It is an Ethereum-based token and can therefore be sent from one Ethereum address to another and stored in any crypto wallet that is compatible with Ethereum.
The various oracles operating within the Chainlink system, sometimes referred to as node operators, have a requirement to stake a certain amount of LINK tokens in order to join and provide data feeds to smart contracts.
Mandatory staking of these tokens provides stability to the system, since stakeholders have a vested interest in providing accurate and secure data, and growing the credibility and popularity of the ecosystem.
LINK tokens can also be used as a form of payment from parties in smart contract agreements to oracles in the Chainlink network in return for the reliable data feeds that they provide. The fee received for these services would also be written into the programming of the smart contract itself, and would be transferred automatically.
In the future, holders of the LINK token may also have the power to vote, submit proposals, and have a direct impact on how the Chainlink network operates and develops, with holders of greater sums of LINK likely having more sway than those with less.
As with almost all digital assets, LINK is traded on numerous cryptocurrency exchanges and can be bought and sold by anyone who wants to speculate on its future value. But unlike many digital assets, LINK also has a specific utility. If you want to make use of the oracles on the Chainlink network, you will be required to buy LINK.
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How Could the LINK Token Gain Value in the Future?
Investing in cryptocurrencies carries significant risk. A lot of the new development, particularly when it comes to more complex areas like smart contracts and oracles, happens behind the scenes and it can be difficult to track the progress of development as it is happening.
Crypto projects are under no requirement to report their progress or results like more traditional financial instruments, and investing with an incomplete scope certainly creates uncertainty.
The chart above shows the price history from July 2022 to July 2023. See an updated chart and LINK forecast here.
There are a few general things to look out for when trying to determine whether the LINK token specifically will gain value over time.
One straightforward indicator is network usage. If activity on the Chainlink network continues to increase over time, so too will the demand for the LINK token. If Chainlink can gain a reputation for being the most reliable and secure way of collecting data, it bodes well for holders of LINK.
Through strategic partnerships and development into new technology and methods for distribution of data, Chainlink can continue to grow its user base and popularity.
Whether it is logical or not, cryptocurrencies often move as a whole sector. Growth in popularity and adoption of crypto in general will create more potential speculators and users of the LINK token.
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Does Chainlink have competitors?
Chainlink is currently the largest blockchain oracle network in the crypto asset world, but has some competition from the likes of Corda, Koleido, and Hyperledger.
Where can I buy LINK?
There are numerous centralized and decentralized cryptocurrency exchanges that deal in LINK tokens. You can also acquire LINK on more traditional brokerage platforms. Things like fees, withdrawal limits, and position size are worth considering when making a purchase.
What is Chainlink used for?
Chainlink is a decentralized oracle network that provides secure and accurate data feeds to smart contracts. Data being supplied could include almost anything that is quantifiable. Sports scores, stock prices, and weather and climate data are just a few examples.
How is Chainlink related to Ethereum?
The Chainlink network is built upon the Ethereum blockchain platform. Changes to Ethereum’s network can have a direct impact on Chainlink potential and performance. You can store your LINK tokens in an Ethereum-compatible wallet.
Can blockchains besides Ethereum use Chainlink?
Yes. Even though Chainlink is built on Ethereum, smart contracts coded on blockchains like Avalanche, Polygon, Fantom, and BNB chain can also make use of Chainlink’s oracle network.
What is the total supply of LINK token?
The maximum supply of LINK tokens is 1 billion. Current circulation is near 538 million. Market cap is near $3.3, based on the current coins in circulation and price near US$6.46. If the price increases or decreases, that will increase or decrease the market cap.
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Final Thoughts on Chainlink
The cryptocurrency sector is a landscape of drastic and unpredictable change. While it is difficult to speculate on whether Chainlink will continue to grow and retain its status as the largest oracle network, oracles in general will be essential if smart contracts become more widely adopted.
Being an early innovator in the space and having a solid reputation to this point will definitely aid in attracting talented developers to their team.
Predicting the future value of the LINK token is also a tough task. General market forces, new industry regulation, and the direction of development will all be impactful.
If the developers involved can retain a high standard of reliability and security, and continue to grow the network, they have a chance to set themselves apart from their competitors. The risk involved in speculating is high, but so too is the potential reward.
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