Smart Contracts represent one of the most significant achievements of blockchain technologies. However, they also have problems, for example they are very difficult to use outside the Blockchain. ChainLink wants to solve this problem and provide an infrastructure between Smart Contracts and the real world.


Smart Contracts are a wonderful thing, because they can make and execute many decisions without human error and emotions through data recording and processing. However, a Smart Contract can normally only use data that is also stored on the same Blockchain. This is a big problem because of course a lot of data is stored in normal databases and this will remain so for the time being.

Since Blockchains cannot access data outside their network, solutions are needed to transfer this data into Smart Contracts. So-called “Oracles“ provide external data (temperature, weather, …) that trigger the execution of Smart Contracts when predefined conditions are true.

Rewards will motivate participants of the Chainlink network to create Smart Contracts with access to external data. Should users of other blockchains wish to have access to this data, they can simply interact with the Smart Contract on Chainlink.

To do this, Chainlink tries to create as many API’s as possible to achieve the greatest possible interconnectivity with other Blockchains.

API is the abbreviation for Application Programming Interface and refers to a communication interface in a software or program. Other programs can connect to APIs and access data or functions, or generate their own data.

However, linking Smart Contracts to a single external data set via a single node creates the same problem that Blockchain technology and Smart Contracts aim to solve, namely the so-called „single point of failure“. With a single Oracle node, the Smart Contract is only as reliable as this single node. This is why Chainlink has now built up a whole network of Oracle Nodes and uses many different sources for data collection.


Advantages of interoperability between on- & off-chain data

Chainlink’s distributed Oracle networks consist of highly secure and fully independent nodes. These POS nodes secure millions of dollars across multiple Blockchains. A great advantage of interoperability. But how exactly does an off-chain data access through the Chainlink Oracles work?

Whenever a request for an on-chain price update is made, each node on the network is tasked with retrieving and transmitting the current price. Responses are then collected together and delivered to the network as a single price update. Chainlink explains that the decentralization of the nodes ensures high availability and high data quality for all price reference data. In addition, data quality is maintained through redundancy in that each node retrieves the price from a different API such as CoinMarketCap, CoinGecko, Coin360, etc., obtaining data from many sources.


Many large companies have recognised the potential of Chainlink and are in the process of testing the application of decentralised oracles. However, it remains to be seen whether this service can establish itself as an industry standard.


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