Chainlink is a framework based on a blockchain that has been specially created to enable decentralised oracle networks that can feed smart contracts information and data from off-chain sources in a secure manner.
The network is designed to be interoperable with other blockchains, creating a new robust ecosystem where other tokens from a wide range of networks can communicate with each other. This is especially useful for those tokens that are focussed around decentralised finance (DeFi), a use of blockchain technology that is growing increasingly popular and valuable.
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What is Chainlink?
Like its counterparts, Chainlink is also developed with decentralisation as its core principle as no central authority can influence or have decisive power over the network's matters. Smart contracts mostly work using data that is present on-chain, but the limitation occurs when they need to receive or send data to and from outside channels. Chainlink makes that possible through a decentralised network of oracles or nodes that provide a secure manner to create input and output sources to connect off-chain information channels with smart contracts.
Chainlink has a native token to empower its internal operations which is denoted by LINK. The current value of the LINK, at the time of writing, is around $12.10 with a market capitalisation of $4.2 billion. In the last 12 months, LINK has seen 300% growth and has broken into the top ten cryptocurrencies.
Is Chainlink a type of money?
Chainlink is barely two years old, and its primary purpose is not to replace any conventional or digital currency. The blockchain token, known as LINK, simply exists to power the operations of the decentralised oracle network and incentivise validators. However, you can exchange LINK with some of the most widely accepted tokens such as BTC, ETH, and BCH.
Is it legally recognised?
The current legal status of Chainlink is unknown since it is a new currency. However, it is being sold, bought, and traded across a wide range of cryptocurrency exchanges and trading platforms that fully comply with regional laws and regulations including Anti-Money Laundering (AML) and Know Your Customer (KYC) laws.
What do people use Chainlink for?
The main purpose of Chainlink is to enable smart contracts to securely fetch accurate data from off-chain sources of data and information. However, there are multiple uses of the LINK token.
- As the Chainlink Core can translate data requests from on-chain language into off-chain language, Chainlink can be used to connect to any outside API.
- LINK tokens can be used to make payments in a quick, affordable, and secure manner through the Chainlink network.
- You can invest in Chainlink to earn short or long term profits depending on your investment preferences and strategy.
What merchants accept Chainlink?
When it comes to being a replacement of payment mode, Chainlink hasn’t had much success since it’s still in its initial phase and it is not meant to be a currency replacement. LINK tokens are mostly used for incentivising validators on the network. Although it enables payments across international borders, currently, the adoption rate has been quite low. However, given the success of the currency in the last 6 to 12 months that saw an increase of 300% in its price, it can be expected that both online and offline merchants will start to accept LINK as a viable payment method soon.
The Technology Behind Chainlink
As described earlier, Chainlink has been designed as a decentralised blockchain that collects and provides information from off-chain external channels to on-chain smart contracts using oracles. When a smart contract is in need of accurate information, it creates and sends a request in the form of a contract asking for information. The Chainlink network recognises the data request contract and creates SLA or Chainlink Service Level Agreement to get the data from the off-chain channels.
The SLA has to create further three more contracts known as the Chainlink Reputation Contract which assesses the credibility of the oracle node, the Chainlink Order-Matching Contract that delivers the contract's request to the oracles and receives bids, and finally, the Chainlink Aggregating Contracts that collects all the information gathered by chosen oracles and conducts final reconciliation of accurate data. This data is then translated into an on-chain language that smart contracts can understand.
How it all started - The history of Chainlink
Smart contracts have been quite limited by their inability to acquire data from the off-chain sources securely. Since they weren't able to communicate with outside sources, Sergey Nazarov and Steve Ellis, created an ingenious way to enable smart contracts to collect accurate information from off-chain resources securely. They achieved this feat by creating a decentralised oracle network which allowed blockchain to communicate with external sources.
The ICO was conducted in September 2017, and the co-founders were successful in raising more than $32 million. LINK was declared as the native token of the blockchain which will be used to pay the node operators. It is an ERC-20 token with the extra functionality of ERC-223 standard, enabling it to transfer and call.
Mining Chainlink - How are new coins created?
LINK has a fixed supply of 1 billion tokens. Chainlink tokens cannot be mined like Bitcoin or Ethereum coins, but you can earn them as an incentive by selling off-chain services and information using an API that's connected with the Chainlink network. You also have the option to acquire LINK tokens through a wide range of cryptocurrency exchanges and trading platforms.
Supply - How many coins are available, what if they run out?
At the time of ICO, it was declared that LINK's total supply would be 1 billion LINK tokens. However, it should be noted that it's not capped at that limit. 32% of the coins were rewarded to node operators to keep the ecosystem operational while 30% of the tokens were reserved by Chainlink itself for the purpose of developing and growing the project. 35% of the LINK tokens were sold off in the ICO. Currently, the circulating supply of LINK is around 350 million tokens. With little to no evidence about the cap, it is challenging to predict the maximum cap of LINK supply and what will happen once that limit is achieved.
Decentralisation – What does it mean?
When no single individual, group of individuals, private or public entity does not hold any disproportionate influence or decisive power over a blockchain or its cryptocurrency, the governance system is defined as decentralisation. It means that the decision making power rests with all the stakeholders of the project instead of a few. Decentralisation is a crucial principle in the pursuit of democratisation of money.
Chainlink as an Investment
When you look at the 300% hike in the price of LINK tokens in the last 12 months, you are obviously tempted to take a shot at investing in the token. However, just like other cryptocurrencies, LINK has also become a victim of volatility which means that while there is an upside of making quick money while you’re trading, there is also the downside of losing your capital if the price suddenly plunges. That’s why it’s important that you carry out your due diligence and limit your risk while investing in LINK or any other cryptocurrency.
Why should you invest?
There could be a wide range of reasons to invest in LINK, including the ones listed below:
- If you aren’t completely satisfied with your main income, you can earn secondary income through investing in LINK if you can do proper risk management.
- You may actually believe in the Chainlink project and might invest in the project for that purpose.
- Investing in LINK can be for both short and long term investment based on your preferences and expectations related to ROI.
- You simply want to keep your capital in a decentralised platform where it’s not subjected to any outside interference of financial institutions or government.
Price and volatility - Why is the price so volatile?
Like all the other cryptocurrencies, LINK is also strictly dependent on market forces that determine its price. There is no singular authority that can drive monetary or fiscal policies for the blockchain. That means that even minor events can have an effect on the LINK price. From new technology introduction and increased competition to changing regulatory environments and simple speculation, anything can drive the price up or down in the open, unregulated market. It is for the same reason that we recommend that you take the necessary precautions and manage your risk if you are looking to invest in Chainlink.
Where to buy Chainlink
Although it’s relatively a new currency in the cryptocurrency sphere, Chainlink is already accessible on a wide range of platforms. Prior to selecting your crypto exchange, make sure that you have done your research. Assess the various factors like user-friendliness, convenient trading, transaction charges, withdrawal fees, customer support, and reputation.
Although our top three picks include eToro, Plus500, and FXTB, since Chainlink is relatively a newcomer, its financial instruments like CFDs aren’t still available. However, with the price trajectory that LINK has witnessed over the course of the last few months, it is only a matter of time when LINK CFDs will be available on eToro and other leading platforms. Three of the popular trading platforms are listed below:
- eToro – It is one of the top social trading websites that also offer cryptocurrency CFDs and makes the experience swift, convenient, and affordable. eToro is easy to use, provides analysis, and has low fees.
- Plus500 – Plus500 has positioned itself as one of the cryptocurrency trading leaders. On this platform, you can buy many popular cryptocurrencies.
- FXTB – Another reputed platform that was created for forex trading but has leveraged its exceptional market position to become one of the best cryptocurrency exchanges.
Where to Store Chainlink
Purchasing LINK is only the first step since you need to securely store it as well. That's where cryptocurrency wallets can be really useful since the trading platform's account isn't that safe.
What are wallets?
Cryptocurrency wallets are either software applications that can be installed on your computer or smart devices or hardware options such as flash drives. They enable you to hold your LINK tokens in a secure manner.
What types of wallets are available?
Since LINK is a new token, there are currently not a lot of wallets available for it. However, you can find a decent enough range to identify a suitable pick according to your requirements.
These wallets are either accessed through a login ID and password through your browser or are built into your crypto exchange’s account. They are easy to use but don’t have a lot of security features.
If you want to buy and sell LINK on the go, then you would love a mobile wallet so you can take your LINK tokens as well as trade them wherever you want. Mobile wallets have a number of useful features and bring enough security to keep your tokens safe. Top mobile wallets for storing LINK include Trust Wallet, Atomic Wallet, Coinomi, and Coinbase.
This is a software that you can install and use on a PC or an iMac computer to store your LINK tokens. These desktop wallets bring excellent security features and have built-in trading which many investors appreciate. Exodus and Atomic Wallets are good options for desktop wallets.
When the security of your LINK tokens is your priority, then you don’t want to settle for anything less than a hardware wallet. They don’t have any connectivity hardware inside, so they are completely safe from any vulnerability or security breach. They also include 2FA as well as passphrase protection to provide a further security cushion. Ledger Nano S, Ledger Nano X, and Trezor are great hardware wallets for storing LINK.
If you are looking to combine the features of different wallets, you can do so by using and interlinking a variety of wallets. Trezor can be used in combination with the Exodus wallet. This way, you will get all the reliability, convenience, and user-friendliness you want.
Storing your wallet on an exchange, the potential upside and downside
Using a trading platform wallet gives you quick access to your LINK tokens, and you can sell or buy them right then and there. However, the downsides of such a wallet are that it's not security-oriented and can be subjected to a security breach which can lead to you losing all your LINK coins. Moreover, if the trading platform is down due to a technical glitch or regular maintenance, you can’t access your LINK tokens until the website is up again.
LINK helps smart contracts to create a security bridge with external APIs so they can source off-chain data in a secure manner. No other cryptocurrency has this capability.
LINK cannot be mined using the traditional proof-of-work or proof-of-stake protocol. You can become a node operator to sell digital services and information to get LINK as a reward, or you can purchase it on a crypto exchange.
That is the question that can only be answered by you. Although LINK has recently seen an upward trend, cryptocurrencies are always volatile. Make sure you are minimising your risk before you invest in LINK or any other crypto.
Currently, LINK is not popular enough to be accepted by online and offline merchants. That can change quickly in the near future.
Yes, it is. It is completely decentralised with no outside entity’s interference. No singular individual, organisation, or government can influence the blockchain matters.
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