Cryptocurrency

Understanding Crypto: What Is Chainlink?

What Is Chainlink

Chainlink (LINK) is designed as a decentralized cryptocurrency operating on a blockchain oracle. The Chainlink network aims to promote the movement of secure data from off-chain platforms to on-chain smart contracts. Generally, Chainlink is middleware that links blockchain-based smart contracts with external data like stock prices.

The Chainlink network is served by the LINK  token. This means that purchasing Chainlink is the first step toward getting involved in the network. The Chainlink blockchain is built on Ethereum, deploying the proof-of-work protocol. By being hosted on Ethereum, Chainlink is an open-source blockchain project where anyone can interact with the project’s code and contribute to its development.

Overall, Chainlink was established to incentivize data providers or oracles to act as a link between blockchain smart contracts and external data sources. In this case, each oracle within the Chainlink network is incentivized to relay accurate data. The nodes on the network follow the software’s rules and provide useful data; they are rewarded in Chainlink’s cryptocurrency. Below are some of the benefits of Chainlink:

Access to Authentic Data

Through oracle operators, Chainlink is as transparent as possible, improving how information is gathered from outside its blockchain.

Secure

Chainlink incorporates a security system that guarantees accurate information. It has provided a four-way security system to guide users, ensuring the cryptocurrency is safe. The secure system entails:

Validation System

The system helps users identify the best oracle to use by monitoring on-chain behavior and ensuring it is correct.

Reputation Services

The system ensures that the ratings of every oracle user are recorded and published. It builds trust and improves reputation.

Certification Services

It adds extra security to the first two security services. It guides users in selecting the right oracle and provides certification to quality oracle providers.

User-Friendly

ChainLink offers an easy user interface and design for different needs. The architectural design is divided into two: on-chain and off-chain design. Chainlink works in the following ways:

Oracle Selection

The Chainlink network users draft a service-level agreement  to specify a group of desired data requirements. The software then deploys the SLA to link the user with oracles whose goal is to provide data. After the limits are established, the user submits the SLA and deposits the LINK cryptocurrency

Data Reporting

At this stage, the oracles link with external sources and obtain the real-world data requested through SLA. Next,  the oracles process and relay the data to contracts running on the Chainlink blockchain.

Result Aggregation

This stage entails tallying the outcomes of the data oracles collected and returning it to an aggregation segment. The aggregation contract accepts the responses, assesses the authenticity of each and offers a weighted score based on the total of the data sent back to the user.

Chainlink Fees

Like other cryptocurrencies, Chainlink users incur certain fees and costs. However, the prices are minimal and usually depend on the part of the protocol you are deploying. The main expense on the platform is when requesting external data. In this case, Oracle operators charge a certain amount to make the needed data available. Notably, each oracle outlines its fees, meaning the charges can differ. The basic node fees are usually set at 20 Gwei.

Additionally, exchanges also charge fees during transactions on their platforms. When buying and receiving or trading, Chainlink will attract certain fees. Most exchanges do not charge deposit fees, but you might be charged between 0.1% and 0.2% for every transaction.

Endnote

Chainlink is building on the growing cryptocurrency space as the sector evolves. The existence of an oracle is central to the long-term stability and viability of cryptocurrencies in general. This ability places LINK as a viable asset to invest in mainly due to the countless use cases it presents.

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