Key takeaways
- Chainlink is a network of so-called oracles that bring information from outside blockchains, such as crypto prices, into smart contracts.
- LINK is Chainlink's token. It is used to pay for the service and to reward the people who run the network's nodes.
- Chainlink is not a blockchain of its own. LINK is an ERC-20 token on Ethereum, and there are 1 billion LINK in total.
- Demand for Chainlink's services depends heavily on DeFi, and the price of LINK swings a lot.
Contents
Chainlink is a network of so-called oraclesOracleA service that brings outside information, such as prices or weather data, into smart contracts on a blockchain. that bring information from outside blockchainsBlockchainA public ledger where transactions are grouped into blocks, each linked to the one before, so past records can't be altered without it showing., such as crypto prices, into smart contractsSmart contractA program that runs on a blockchain and automatically carries out what it was written to do once certain conditions are met.. LINK is Chainlink's token, used to pay for the service and to reward the people who run the network's nodes.
Much of what is built on blockchains, DeFiDeFi (decentralised finance)Financial services, such as lending, saving and trading, that run on smart contracts on a blockchain instead of through a bank or other middleman. above all, can't work without reliable data from the outside world. This article explains how Chainlink solves that, what role LINK plays and what is worth knowing.
Who is behind Chainlink?
Sergey Nazarov and Steve Ellis founded Chainlink in September 2017, when the project's whitepaper was published. The cryptographer Ari Juels was one of its authors. The network went live on Ethereum on 30 May 2019, and the company Chainlink Labs works on its development.
What is Chainlink used for?
Oracles connect the chain to the outside world
Blockchains are designed to be closed. That keeps them secure, but a smart contract can't read a website or fetch data from other systems. Picture a meticulous bookkeeper in a windowless room: every sum is right, but they know nothing about the outside world unless someone brings them the information.
An oracle brings the smart contract that information. At Chainlink, the work is done by decentralised oracle networks (DONs). Each one is made up of many independent NodeNodeA computer that runs a crypto network's software, keeps a copy of the blockchain and checks that new transactions and blocks follow the rules. operators that fetch data from many sources. A single wrong source or a single dishonest node can't decide the result.
Price feeds are a good example. A lending app such as Aave needs to know at all times what the CollateralCollateralAn asset pledged as security for a loan. In DeFi, the collateral usually has to be worth more than the loan. is worth, so it can trigger a LiquidationLiquidationWhen a loan or leveraged position is closed automatically because the collateral or margin no longer covers the debt. if the collateral is no longer enough. Aave gets those prices from Chainlink.
CCIP connects blockchains
CCIP (Cross-Chain Interoperability Protocol) is Chainlink's standard for communication between blockchains. It can move tokens between chains and send messages that trigger smart contracts on another chain. CCIP opened for general use in April 2024.
Traditional financial institutions have tested CCIP too. In 2023 Swift, which runs a global payment network for banks, ran an experiment with more than a dozen financial institutions. CCIP connected Swift's network to blockchains so that tokenised assets could move between them. This ties in with Tokenisation (RWA)Tokenisation (RWA)When an asset outside the blockchain, such as a government bond, gold or property, is issued as a token that can be held and sent on a blockchain., recording traditional assets as tokens on a blockchain.
The role of LINK
- Paying for services. Those who use Chainlink's oracles pay for them in LINK, and node operators are paid in LINK.
- Staking. Node operators and other LINK holders can lock up LINK in StakingStakingLocking up crypto on a proof-of-stake network to help confirm transactions, in return for rewards paid in the same crypto.. If certain oracle networks fail to meet set requirements, part of the stake can be lost, which is called SlashingSlashingA penalty on proof-of-stake networks. A validator that breaks the rules loses part of its stake and is removed from the network..
How does Chainlink work?
Not a blockchain of its own
Chainlink isn't a blockchain and has no consensus mechanismConsensus mechanismThe rules that let thousands of computers agree on a single version of a blockchain without trusting any one party. of its own for transactions. It is a collection of many oracle networks serving different blockchains. LINK itself is an ERC-20ERC-20A standard for tokens on the Ethereum network that lets every wallet and service receive and send them in the same way. token on Ethereum, more precisely ERC-677, an extension of ERC-20.
So when you send LINK, you are making a transaction on the Ethereum network. Ethereum confirms it using proof of stake, and the fee, GasGasThe unit that measures the computing work a transaction or smart contract needs on Ethereum, which sets how high the network fee is., is paid in ether. Speed and cost depend on how busy Ethereum is at the time.
Supply
There are 1 billion LINK in total, and no more will be created. That is LINK's total supplyTotal supplyHow many units of a cryptocurrency already exist, whether in circulation or still locked, minus any that have been destroyed.. Not all LINK is in circulation yet, and according to Chainlink, about 7% of the total supply is currently released each year.
What are the risks?
- Dependence on DeFi. A large share of Chainlink's use comes from DeFi. If activity there shrinks, demand for the service can fall, and more use of the network doesn't automatically translate into demand for LINK.
- Oracles can fail. If an oracle reports a wrong price, smart contracts act on it, for example by liquidating loans. Decentralised oracle networks reduce this risk but don't remove it.
- New supply. New LINK enters circulation every year.
- Price swings. The price of LINK swingsVolatilityHow much and how quickly the price of an asset moves up and down. a lot, as with other cryptocurrencies.
LINK at Myntkaup
At Myntkaup you can buy, sell and hold LINK. You can also deposit and withdraw it on-chain, and it is then sent on the Ethereum network as an ERC-20 token.
LINK also exists on other networks, such as Arbitrum, Base and BNB Chain, where addresses look the same as on Ethereum. So make sure you choose the Ethereum network, because a transfer on the wrong networkBlockchain networkThe blockchain a cryptocurrency or token is recorded and sent on, such as the Bitcoin network or the Ethereum network. can be lost. If you send LINK from your own wallet, you also need a little ether for the gas. Read more in How to send crypto to another wallet.
You can see the price of LINK on the LINK price page.
Frequently asked questions
Is Chainlink a blockchain?
No. Chainlink is a network of oracles serving many blockchains. LINK is a token on Ethereum, and LINK transactions are confirmed by the Ethereum network.
Why do I need ether to send LINK?
Because LINK is an ERC-20 token on Ethereum. Every transfer is a transaction on the Ethereum network, and its fee is always paid in ether, not in LINK. See What is Ethereum?
Closing thoughts
Chainlink is a network of oracles that bring outside data into smart contracts and connect blockchains through CCIP. Many people see that kind of connection as a precondition for DeFi and tokenisation to work, and LINK is the network's means of payment.
Use of the network still depends heavily on DeFi, though, and the price of LINK swings a lot. Learn about the risks before you buy.
