Chainlink is one of the most widely used oracle networks. It is a decentralized network that helps smart contracts to access external data securely.
In this article, you will learn more about Chainlink’s oracles and why they are important.
What are Chainlink’s Oracles?
For most people, the word oracle refers to the American multinational tech giant known for database software and technologies. That is certainly not the case for crypto enthusiasts and blockchain experts. If so, what does oracle mean in web3?
Oracles or blockchain oracles are services that serve as an interface between blockchains and the outside world. Although their primary function is to feed information from the outside world into blockchains, the reverse is also possible. Blockchain oracles enable the execution of smart contracts based on the inputs and outputs from the real world. Oracles also serve as a channel for decentralized web3 ecosystems to access data from existing sources.
That means oracles enable web3 ecosystems to access legacy systems and advanced computations.
Chainlink’s pull-based low-latency oracles are going to be an absolute gamechanger this year
Rather than regularly pushing data on-chain based on predefined conditions
Oracle reports are made available off-chain and placed on-chain by users when it is needed
Huge implications pic.twitter.com/qmWE7G0api
— ChainLinkGod.eth (@ChainLinkGod) January 12, 2023
But, are oracles used in smart contracts? Yes, hybrid smart contracts are created with the help of decentralized oracle Networks. Developers combine both off-chain and on-chain codes to form a single hybrid smart contract. These contracts make unique and crucial changes or improvements to the on-chain code.
What is a DON?
Many decentralized applications and smart contracts use Decentralized oracle Networks (DoN). DoN helps them to access and use data from outside of the blockchain in a secure fashion. In a decentralized oracle network, multiple oracles are used simultaneously to provide data. The consensus mechanism determines the most accurate data. Examples of decentralized oracle networks include Chainlink, Band Protocol, and Tellor.
This new perspective on the nuances of proof of solvency from #Chainlink Labs Chief Research Officer @dahlia_malkhi explores how decentralized oracle networks can help enable transparent reporting while minimizing trust.
Dive in👇 https://t.co/fAo7wRiRDQ
— Chainlink (@chainlink) January 5, 2023
Working on Chainlink Oracles
In the chainlink ecosystem, the oracles act as nodes. These nodes provide external data to the smart contracts in the blockchain. The nodes act as a bridge between external data sources and the blockchain. These oracles can be used to connect smart contracts to a wide range of data sources. The sources include APIs, web scraping, and off-chain data storage. It helps in enabling the usage of smart contracts in many real-world applications.
When a smart contract requires data, it puts a request or “Requesting contract”. The chainlink protocol sees this request as an event and creates another corresponding smart contract. This contract is the Chainlink Service Level Agreement (SLA). The chainlink SLA contract generates three other sub-contracts. They are:
- The Chainlink Reputation Contract: It checks oracle providers’ track records. It verifies the authenticity and performance history of the oracle node so that it can evaluate and discard unreliable nodes or remove nodes with a bad reputation.
- The Chainlink Order-Matching Contract: It delivers the requesting contract request to the nodes. If the requesting contract did not choose nodes, the matching contract accepts bids from the nodes on the request. It then selects the number of nodes and their types that will be adequate to fulfill the corresponding request.
- The chainlink Aggregating Contract: It takes all the data from the oracles chosen by the request. The contract then validates and reconciles data if necessary to obtain accurate results.
The $LINK token is used as payment for node operators to compensate for their work. The node operators set prices based on the demand for the data provided. Also, they consider the current market for the specific data.
Also, the nodes obtain a reputation score with the help of a smart contract called Chainlink Reputation Contract. It considers the node’s stake while assigning nodes to fulfill requests for data. Usually, the nodes with higher stakes have a greater probability to fulfill requests. The network punishes faulty or dishonest nodes for poor service by taxing their stake of tokens.
Cardano and Chainlink
InputOutput(IOHK), the tech company building Cardano’s open-source blockchain announced its strategic collaboration with Chainlink Labs at the Cardano summit 2021. The aim is to integrate Chainlinks leading decentralized oracle network as Cardano’s preferred oracle solution. So what does this collaboration mean?
Through a strategic collaboration between Chainlink Labs and @InputOutputHK, #Chainlink Price Feeds are being natively integrated onto the @Cardano blockchain to enable Cardano developers to build a variety of #DeFi applications powered by secure oracles. https://t.co/NVJbi9VPrU
— Chainlink (@chainlink) September 25, 2021
Well, developers will be able to create highly advanced hybrid-smart contracts with the help of the decentralized services provided by chainlink. The Cross-Chain Interoperability Protocol announced by chainlink will create additional opportunities for them to collaborate and work towards the vision of a multi-chain world.
Oracles on Chainlink’s Network
The list of oracles on the chainlink network keeps constantly changing as it is an open network. Anyone can create an oracle or retire an existing one at a given moment. You can check existing oracles here.
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