Chainlink is a decentralized oracle network that feeds actual information to blockchain smart contracts. Smart contracts are which was before blockchain agreements that evaluate data and execute automatically when specific circumstances are satisfied. LINK tokens are the digital asset tokens that are used to pay for network services.
Chainlink Smart Contracts: An Overview
To grasp the benefits of Chainlink and how it works, you must first grasp a few basic, interconnected principles. Let's take a look at smart contracts first.
Smart contracts are pre-specified blockchain agreements that evaluate data and execute automatically when specific circumstances are satisfied. Crowdfunding is an excellent example: payment will be given to the fundraiser if a particular amount of ether (ETH) is deposited into a smart contract by a certain date; if it is not, cash will be returned to contributors. Smart contracts are immutable (cannot be modified) and verifiable (everyone can see them) because they are stored on a blockchain, ensuring a high level of trust among parties that they accurately reflect the agreement's specified parameters and will execute if and only if those criteria are met.
Smart contracts require off-chain data in an on-chain format to build agreements other than those relating to data contained on the blockchain. One of the primary restrictions in how broadly smart contracts can be used is the difficulty of linking outside information sources to blockchain smart contracts in a language that both parties understand.
The On- and Off-Chain Chasm is bridged by Chainlink Oracles.
Oracles are useful in this situation. An oracle is a piece of'middleware' software that functions as a translator, converting data from the real world to smart contracts on the blockchain and back.
A single centralized oracle, on the other hand, causes the precise problem that a decentralized, blockchain-secured smart contract is supposed to solve: a single point of failure. How would you know whether your data is accurate if the oracle is faulty or compromised? What good is a safe, dependable smart contract on the blockchain if the data it relies on is suspect?
Let's go over the basics of smart contracts and oracles:
Smart contracts are immutable and verifiable contracts that, when certain conditions are satisfied, execute automatically in an IF/THEN framework.
The blockchain has historically provided the data that establishes these conditions.
Oracles, which provide off-chain data to on-chain smart contracts, have just been brought into the crypto industry.
However, because centralized oracles may be untrustworthy or inaccurate, they reduce the benefits of on-blockchain smart contracts.
Chainlink is a decentralized network of nodes that connects off-blockchain data and information to on-blockchain smart contracts via oracles.
This technique, together with additional secure technology, removes the reliability difficulties that could arise if only a single centralized source is used.
Chainlink Smart Contracts Types: What Are They and How Do They Work?
When a smart contract demands data, the process begins on a blockchain with smart contracts enabled. That smart contract sends out a request for information (Requesting Contract).
To obtain this off-chain data, the Chainlink protocol registers this request as a "event" and produces a matching smart contract (Chainlink Service Level Agreement (SLA) Contract), also on the blockchain. A Chainlink Reputation Contract, a Chainlink Order-Matching Contract, and a Chainlink Aggregating Contract are all created by the Chainlink SLA Contract.
The Chainlink Reputation Contract verifies an oracle provider's legitimacy and performance history before evaluating and discarding untrustworthy or unreliable nodes.
When the Requesting Contract does not designate a specific set of nodes, the Chainlink Order-Matching Contract presents the Requesting Contract's request to Chainlink nodes and accepts their bids on the request — and then selects the proper number and kind of nodes.
The Chainlink Aggregating Contract checks and/or reconciles all of the data from the chosen oracles to get an accurate result.
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Interesting article - What are some real-life use cases for Chainlink?