Technical details of Chainlink and how it works

Chainlink is a block-chain based decentralized Oracle network that allows smart contracts to connect to external data sources these include APIs internal systems or other types of external data field link is an  ERC20 token that is used to pay for this oracle service on the network. 

How does Chainlink work?

Before knowing about Chainlink it is important to know how smart contracts work.

Smart contracts

The smart contracts that are agreements programmed to execute if certain conditions are met, but unlike traditional contracts, there is no central authority that can try to alter the terms of the contract or do not execute on the contract correctly because smart contracts work on top of the decentralized block-chain technology, this is important and it is probably going to become the preferred way of handling contracts in the future once this gets more adoption and people feel more comfortable with using it.

Also, Chainlink can determine with relatively high accuracy, which sources are trustworthy this can greatly increase the accuracy of the result and protect smart contracts from most types of attack.

The role of smart contacts in link chain?

Smart contracts automate agreements on the block-chain, they evaluate information and if certain conditions are met they execute however this presents a problem block-chain doesn’t have a good way to access external data the difficulty of connecting chain data with unchained data is one of the great challenges facing smart contract chain links attempts to solve this problem by providing a decentralized Oracle service in short in an oracle is a piece of software that translates external data to a language that smart contracts can understand.

A big problem with smart contracts is that the blockchain on which these smart contracts run cannot support native communications with external systems.

The smart contact that requests data from chainlink node operators in  exchange for their service the prices are set by the node operators based on the market conditions for their data node operators also stick on the network to ensure long-term commitment to the project similarly to bitcoin’s crypto-economy model generic node operators are incentivized to act trustworthy instead of being malicious.

What makes chainlink different from other block-chains?

As Block-chains can’t take in or push out any data external to them.

A block-chain can talk to one another, but they can’t get anything external to that network and this isolation on block-chains is part of the reason that they are so secure in the first place but we still have this problem of how to get data into or out of a block-chain? Or the smart contracts that operate on them because without doing this we can’t use smart contracts for anything that resides outside the block-chain like we might be able to use it for exchanging different tokens for one another.

In contrast to many other crypto-assets, link chain has no mining or sticking process that increases its circulation supply as mentioned chin link node operators can stake link as a way to offer a bid to the intended buyer of the data the node operator that wins the bid must provide the information to the smart contracts for making the request.

What is Oracle and its role in Chainlink

We need some way to be able to deal with inputs that are coming from real life and then outputs that are also going to affect real life so the current way that this type of problem is being solved is by using oracles which essentially serve as a bridge between the block-chain and data that is coming from the real world and data that’s going to be going out from the block-chain into the real world.

A centralized oracle is a single provider of external information to a smart contract, that creates few big problems like:-

  • Its centralized
  • If one oracle provides false or incorrect data all the system that rely on it will fail this is often called the oracle problem

Chainlink is attempting to solve chain-link uses a network of nodes in an attempt to make the data provided to the smart contract as trustworthy and reliable as possible let’s say smart contract requires real-world data and it puts out a request for it the chain-link protocol registers the event and forwards it to chain-link nodes to take the builds on the request what makes the process powerful and this is how chainlink can validate data from multiple sources due to the internal reputation of the system.


Chainlink seeks to solve the problem of the centralized oracles by basically being a decentralized Oracle system so the way that this might work with chain link is let us say that you have a responsible node for checking payments and this node is going to be receiving data from different sources about who is paying and when.

They undergo result aggregation where they tally up and assess the validity of all of the different inputs that they got and then they will return some kind of a weighted score now because this information is collected from multiple sources and then aggregated it prevents the data inputs from coming straight from a centralized authority.

In the link there is currently a supply of about $416 million Chainlink  in 2020 and they have a total supply cap of 1 billion link coins and 35 of those were sold during the Initial Coin Offering (ICO) in 2017.

IMPORTANT: These technical details of the coin, not any financial advice.

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