What is Chainlink and What Does it Do?

When most people think of the word “cryptocurrency,” they think of high-volatility assets, the potential for huge gains and losses, and?Bitcoin‘s general dominance of the space.

That’s understandable – when crypto makes the news, it is often for reasons such as those.

Yet if you go a little deeper in attempting to understand the allure of crypto, you eventually come upon the concept of smart contracts, and the essential role that oracles like Chainlink play in developing them.

The further you go into researching the potential value of smart contracts and oracles, the more you may find yourself seeing crypto as a sort of financial internet, and not just a store of value, akin to gold or silver in digital form.

What is a Smart Contract?

Smart contracts are agreements that are coded onto blockchain networks, such as?Ethereum, that self-execute and thus do not require any participation from middlemen, arbitrators, or third parties of any kind. Since these agreements can come in an almost infinite variety, the immense future potential of smart contracts is hard to even conceive.

They can be used in a wide range of functions, including automating real estate sales, insurance claims, supply chain management, and escrow services. They can also be used for powering decentralized?crypto exchanges, and for the creation and distribution of tokenized assets, including Non-Fungible Tokens (NFTs).

The secure processing and storing of sensitive and confidential data for the purpose of identity verification, document authentication, and other digital identity management is also something smart contracts can be geared towards.

Since smart contracts are stored directly on blockchain technology, all participants involved have the benefit of full transparency, cost savings, and efficiency. This is due to the absence of intermediaries and the high level of security that decentralized blockchains are known for.

What is an Oracle?

Smart contracts are an exciting tool, but since the digital agreements coded within them often depend on data that exists outside of the blockchain, there needs to be an entity that can reliably bridge the gap between the smart contract and that outside data.

For example, if a smart contract is programmed to execute a series of financial transactions when the current market price of oil hits $150 per barrel, there needs to be an extremely secure source that tells the contract that the current price has in fact reached $150 and that the program needs to execute.

If the smart contract relies on only a single source of data to meet its conditions, it is vulnerable to tampering and erroneous data being provided. Because of this, smart contracts are provided with multiple data points from multiple and external data sources by way of decentralized oracle networks (DONs).

Chainlink is one of these oracle decentralized networks. External data is called off-chain data.

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