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ChainLink Review: Scam Project or Serious Player?
One of the difficulties with Decentralized Finance is that smart contracts work on the blockchain, but most real-world businesses are not on the blockchain. Going on the blockchain requires considerable investment, out of reach for some businesses, which could nevertheless benefit from access to decentralized financial systems. The aptly-named Chainlink seeks to link the blockchain to the outside world.
Blockchains were designed to be self-contained. What happens when a transaction requires information from outside the blockchain – stock prices, say, or the outcome of a football game? Currently, this is done through the use of a type of software called an oracle. An oracle takes real-world data and translates it into smart contracts on the blockchain. A smart contract is a computer program that carries out a transaction automatically when its specified terms are met.
The problem is that each oracle is centralized, which neutralizes the advantages of decentralized finance. What if the oracle is faulty or tampered with? Once data is added to the blockchain, it cannot be changed. This prevents anyone reneging on the contract and safeguards against fraud; but it also means that if the data is faulty, there is no way to correct it.
A solution is found in Chainlink’s approach: gather the same data from many oracles. Chainlink generates a smart contract that splits into three parts. The first part, called the Reputation Contract, checks the reputation of the various oracle providers – their track record of reliability – and chooses only those oracles that are known to be reliable. Then the second part, called the Order-Matching Contract, takes bids from those oracles that the Reputation Contract approved.
Once the right number and type of nodes have been chosen, the third portion, the Aggregating Contract, takes the data from the selected oracles and cross-checks it. Majority rules. That is, the data on which most oracles agree is taken as correct, and dissenting data is discarded. A Chainlink contract can do this process iteratively, that is, if data come from several different sources, it will validate each source through the chosen oracles, and then produce one data point to send to the blockchain.
Under this system, the larger the network, the better: in order to falsify data, one would have to control the majority of oracles. This might be possible on a relatively small network, but is nearly impossible on a network of thousands of nodes, widely dispersed, especially since nodes do not communicate with each other, but only with the blockchain directly.
The Trusted Execution Environment
Another safeguard against data tampering is the Trusted Execution Environment (TEE). This creates a separate enclave within an operating system, that can read data from outside the enclave, but the data within the enclave is invisible to the rest of the system. The upshot is that even if the node operator has a conflict of interest with the contract in question, they would not know about it, and therefore would not send inaccurate data.
Node Operators Have a Stake
Chainlink uses its own cryptocurrency known as the LINK token. Anyone wishing to operate a Chainlink node must deposit LINK tokens, and the size of the operator’s stake is one of the factors considered by the Reputation Contract. If a node provides poor service, its LINK stake is taxed. These two factors provide an incentive for the link operator to provide quality, accurate data. The service is also paid for in LINK tokens. Any API provider, such as an e-signature provider or an online payments platform, can join the Chainlink network and become a node operator.
Using the Blockchain Without Being on It
Many businesses could benefit from smart contracts but have no intention of making the necessary investments to go on the blockchain. This is where Chainlink is most useful: a business can leverage Chainlink’s smart contracts and access to oracle networks without having to build their own. One potential use for this is that a credit card company can use the network to conduct transactions between vendors and customers.
Another is insurance – in the insurance industry, the biggest expense is insurance fraud, so having the facts of a claim immutably recorded on the public blockchain is a distinct advantage. Chainlink has been in contact with SWIFT, which may end up using Chainlink to enable banks to use smart contracts. For that matter, private individuals can pay each other based on verified information.
The Consensus Advantage
One advantage of this approach is that it reduces vulnerability. In the controversial bZx flash loan “hack,” a user made nearly a million dollars in profits from arbitrage, which is, buying and selling a cryptocurrency on different exchanges. The huge profit was possible because of large discrepancies in the price data between the different exchanges.
In the aftermath of that incident, bZx has integrated with Chainlink, as have other cryptocurrency platforms, in an effort to eliminate these kinds of price discrepancies. This may be bad news for speculators, but it is good news for the industry as a whole. Speculation volatilizes prices. As recently as May 2020, Goldman Sachs said that Bitcoin should not be considered an asset class, because speculation has made its price so volatile.
At first, LINK tokens themselves were largely used for speculation, but over time, a group of investors who call themselves the LINK Marines has taken a buy-and-hold strategy, possibly saving up their LINK tokens for use in Chainlink smart contracts. This removal of tokens from the market helps to keep the price up due to supply and demand.
Beginning in late 2019, as LINK tokens were gradually removed from the market, the price reached new highs. And although it has fluctuated, has never dropped back to where it was before, and has beat out Augur and Uniswap, which had been predicted to win. Of the total supply of 1,000,000,000 LINK tokens, there are as of March 2020 only 350,000,000 in circulation.
There are whispering rumors the project is currently too centralized and the developers/admin are controlling up to 2/3 of the coins with no legal obligation to not dump on the market which leaves the bag holders vulnerable but those who research and follow the project closely say that is unlikely as the fundamentals regarding progress and relationships/partnerships make this a winning project.
For now, the LINK token is the only way to access this kind of decentralized on-chain to off-chain connection. There have been questions as to whether this needs to be true, however, and it is technologically possible for competitors to develop their own systems. Chainlink is built on the Ethereum blockchain and has partnered with other blockchains, such as IOST, Hedera Hashcloud, and Wanchain.
If any of these develop their own technique for accessing decentralized oracle networks, Chainlink could become a redundant extra layer. Other developers, for instance, Witnet, are also building their own decentralized oracle systems.
Is LINK a Good Investment?
There are more than 9,000 cryptocurrencies currently in existence, as compared with only 180 recognized fiat currencies. This is largely because cryptocurrencies are easy to create, not requiring a government to issue them. The downside, though, is that any new cryptocurrency must compete for market share with existing ones; either all will have relatively small market share, or there will be a few big winners and a lot of big losers. In choosing any cryptocurrency, do not look just at what is hot and trending now; look at what a given currency has to offer compared to others.
Chainlink has an advantage in being the first, and so far only, cryptocurrency that allows decentralized, off-chain smart contracts. It also has the advantage of being built on the Ethereum blockchain, a major player in the cryptocurrency world; however, is blockchain agnostic, meaning that it can operate on any blockchain, and has begun collaboration with Binance, Synthetix, and Conflux. Chainlink recently acquired Town Crier, which supplies the hardware to the decentralized oracle system. They have partnered with Celer, which enables on-chain payments based on off-chain information.
The financial platform Katallassos and the trading platform Mobilum both use Chainlink for their oracle data. Google Cloud and Chainlink have together built a hybrid blockchain-cloud application. Chainlink is currently (July 2020) the 12th largest cryptocurrency by market value.
Chainlink Price Prediction
Depending on who you ask, you will get different answers but that is common among all the coins. Some people thing Bitcoin is going to zero while others think BTC is going to millions of dollars.
Considering Chainlink is offering a unique and innovative solution in the space and is not redundant to many of the other coins, there is a strong fan base and supportive community of Link marines that believe it will be one of the top performers in the pool of coins, already landing in the top five.
Some people might be worried about having their data recorded on a public blockchain where anyone can see it. To counteract this concern, blockchain transactions use pseudonyms by default; nobody would be able to identify the individual whose data it is without knowing whose pseudonym it is.
Privacy is then a matter of not revealing that information – much the way you already safeguard your credit card number or your internet passwords. With the Google Cloud-Chainlink hybrid, there is the added safeguard of being able to use submarine sends at greatly reduced storage consumption. This prevents front-runners from exploiting on-chain leakage.
How To Buy Chainlink
One difficulty with the cryptocurrency space is that so many crypto exchanges are decoupled from fiat currency, only allowing the exchange of one cryptocurrency for another. This might be fine once you are in, but how to get in in the first place? You can buy the coin on Uphold or Coinbase and use Coinabse Pro exchange if you want to trade LINK using US dollars or other cryptos.
Overall, Chainlink is a cryptocurrency worth watching. It is innovative, pioneering a niche as yet under served, and providing real value beyond just trading. It is one of the few cryptocurrency projects that can be called unique.