The Chainlink Emergence: Opportunities and Prospects

 

 

As is common in emerging markets, every now and then a new project or offer appears with the intent of completely taking over or reshaping it. While the first half of 2020 was quite slow, a particular project gained a lot of momentum during that time: Chainlink.

 

What is Chainlink?

Unlike most projects in the blockchain area, Chainlink is not yet another blockchain. Rather than trying to reinvent the wheel, Chainlink joins a small set of projects whose main goal isn’t to become the de-facto blockchain, but to improve already existing ones.

To do this, Chainlink has tagged itself as an “oracle middleware.” In order to understand what this means, we should know what each of those words mean in the blockchain world.

 

Middleware

A middleware in tech is a piece of software that’s used to link two or more otherwise separate systems. In blockchain, middlewares are often seen in projects attempting to bridge together different blockchains or different versions of a single blockchain.

Oracles

An oracle, in blockchain lingo, is an app or node dedicated to interacting with the outside (what one would say the “real”) world. As Binance Academy puts it, “Blockchain oracles are third-party services that provide smart contracts with external information. They serve as bridges between blockchains and the outside world.”

Knowing those definitions, it should be easy to notice that an oracle is pretty much a specialized middleware, because it is. However, Chanlink’s implementation goes beyond a simple oracle, allowing blockchains to connect to many external, real-world elements by using multiple APIs.

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What does this all mean in layman terms?

 

Let’s take a step back and look at the big picture. Blockchains such as Ethereum have earned their spot in the market because of their implementation of smart contracts – that is, digital contracts with the ability to both police and enforce themselves. One of the most-often mentioned examples of a smart contract in use is dividing profit from a business venture, where a smart contract would always assign profit as initially stated, without any chance for third party tampering. This way, royalty arrangements would be ironclad.

Yet, in order for a smart contract to work, it needs to somehow figure out what’s happening outside the blockchain. That’s where middleware and oracles come in – they work to provide these contracts with the information they need.

 

Right. But what’s so good about Chainlink?

 

While Chainlink is an oracle, and oracles are nothing new in the market, there’s a small – yet important – difference: Chainlink is a blockchain itself. A blockchain that’s made specifically to work as an oracle for other blockchain applications and, effectively, applications running in other blockchains.

Chainlink manages this by using a constantly growing variety of APIs that allow any of its nodes to search for, and obtain, any information they need.

Yes, any of its nodes. Chainlink is, in essence, a blockchain of oracles.

 

Why would we need this?

 

Because oracles aren’t infallible. While they’re usually programmed with the utmost care, data errors exist. Problems with fetching data exist. Nodes can, and do, sometimes go offline. All these can lead a smart contract depending on a single node or a centralized system to be at risk of either reporting wrong data or being left in the dark by an outage.

Chainlink’s blockchain of oracles changes the game on this regard. When using Chainlink, the oracle will not report just the data it got from a source – but instead a number that’s been fetched, verified, and agreed on by a series of oracles, using the blockchain consensus mechanism to this end – and leaving an immutable ledger in its wake where any suspected problems can be verified. By doing this, Chainlink plans on allowing smart contracts to get rid of the weakest link – that is, the current oracles – thus replacing them with a system that’s just as trustable as the blockchains running said contracts.

 

Why is it growing now? It’s not a new project…

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It’s not new, indeed, although it’s been in constant growth for a few years.

The reason it’s been steadily growing and gaining traction over the past six months, however, comes down to a single reason: partnerships.

Finding actual market use is one of the hardest parts of launching a blockchain. Projects can be perfect, but they’ll end up being worthless if nobody uses them. Chainlink has, over the last year, reached partnership deals with both other parts of the community and outside players – the largest of them being Google. Having a partnership with such a big corporation is always a major factor for driving trust, and this trust will indeed tend to make stake prices (or in this case, token prices) raise. Other large services, like Bloom, have also signed collaborations with Chainlink.

 

So it’s a safe investment?

 

Let’s take a step back. No investment is ever safe.

Chainlink is a good investment, in that its value has been going up and will likely only rise further as blockchain keeps slowly but steadily penetrating into our everyday lives.

However…

We’re in the middle of a recession, which means it’s impossible to tell what the short-term behavior of the market will be. More importantly, July is usually a bull month – but August and September are regularly considered bear market months. What this means is, it’s perfectly possible that Chainlink’s value will go down over the next month or two, as the recession intensifies by the resurgence of COVID-19 along with natural market forces.

Still, the recession isn’t going to last forever, and Chainlink is still in full development. The economy will recover and, even if Chainlink loses value now, it’s very likely to regain it – and probably surpass it – once the recession is over. In fact, if Chainlink tokens go down over the next month, that will be a good signal for many investors that the time to jump in has arrived.