ChainLink: Enabling Universal, Decentralized Connections for Smart Contracts

ChainLink is a decentralized oracle provider, allowing smart contracts to connect to external data sources. This data reflects real-world activity and is used to determine whether or not a contract has been triggered, and if so, then how. 

ChainLink is located in San Francisco and boasts an impressive team of developers and advisors, including Evan Cheng, Director of Engineering at Facebook. The team has been working for three years and published their white paper September 2017. So far they have built middleware for Ethereum, Bitcoin, and Town Crier, and plan to expand their number of offerings.

Smart Contracts & APIs

A background understanding of smart contracts and APIs is necessary to fully understand ChainLink’s value proposition. Smart contracts are digital agreements that are made tamper-proof by being hosted on a blockchain network, such as Ethereum. Smart contracts offer institutions and individuals a much more trustworthy platform for event-based financial transactions; neither party can falsify an event, as the event itself is checked against the decentralized ledger.

Smart contracts are a preeminent form of digital agreement still nascent in their development. The biggest hurdle to smart contracts’ versatility is their inability to connect to external data sources. Because they are decentralized across a node network, they are unable to communicate with any other API (application programming interface). APIs are just the commands that different applications send to each other to share data and coordinate tasks; they are largely responsible for allowing the complex web of data-sharing across the internet. Without speaking to any other source of data, smart contracts are limited to what information their triggers can rely on. Only information on the chain itself can be readily accessed. In order for the blockchain to communicate outside of itself, there must be middleware installed. Blockchain middleware sits between the blockchain and external networks, like an adapter for a power outlet. Current middleware for uses a single node (an “oracle”) as an adapter for a data source. Unfortunately, this subverts the contract’s security. A single oracle cannot verify the data against other nodes, opening up a hacking vulnerability. Smart contracts that rely on a single node could be falsely triggered if the node itself was hacked to send incorrect data.

Chainlink Token

LINK Token

The ChainLink platform utilizes LINK token in its reward and remuneration system. Node operators are paid LINK tokens by smart contract owners for maintaining the integrity of their data stream. The token then serves as part of the ChainLink’s efforts to promote high-quality operators. An operator’s reputation is reflected in the number of LINK tokens that they hold in their node. LINK tokens are also used in penalty payments made by node operators if they fail to provide quality data to a smart contract holder. The LINK tokens are held in an escrow account and remitted to the contractor holder given an infraction. If no infraction, they are released daily to the node operators.

ChainLink Security Services

In addition to connecting smart contracts to external data, ChainLink includes four different security services: a Validation System, a Reputation System, a Certification Service, and a Contract-Upgrade Service. 

The Validation System will measure an oracle’s response time to queries and the correctness of their responses. This system rewards oracles for reporting evidence of another oracle’s non-responsiveness and erroneous data, and the data is then shared with users in real-time. The Reputation System will allow users to evaluate oracle providers and nodes based on a rating system. Results from the validation system would be combined with other factors, such as their total number of requests, number of penalty payments, and their average response times. This system will create a self-fulfilling cycle of high reputations being rewarded with business and node operators performing well in order to gain a higher reputation. 

The Validation and Reputation systems are used to monitor faulty node behaviors and maintain the integrity of the platform at-large. The Certification Service is aimed at preventing cheating on the system via attacks using blocks of nodes to spoof verification protocols. The Service will issue endorsements of trusted and high-reputation oracle providers based on the output from the Validation system and other off-chain scrutinies, such as underlying security standards and low-level code. It also involves further cross-referencing bunches of nodes against other bunches, in order to identify possible cases of collusion. 

The Contract-Upgrade service is the only component of the ChainLink security service that is optional. It offers users the ability to migrate their contracts to new ones following a bug or other damage. This will give users greater confidence over existing smart contracts, as they can be locked into an agreement that, for whatever reason, has become erroneous.

Chainlink Tech

Effects of ChainLink Technology

ChainLink’s rollout and implementation will have large-scale consequences in the blockchain and smart contract industry. ChainLink dramatically expands the possibilities for smart contract application. Conceptually, nearly any financial transaction can be structured through a smart contract. However, most of them would require the blockchain to connect to external data. All this means that one of the biggest consequences of ChainLink will be the proliferation of more and more smart contracts that are increasingly useful. These contracts will likely become more mainstream, with larger institutions using them for their own operations.

The most important consequence is that smart contracts will now be able to pay out in US dollars automatically from banks, instead of paying out in whatever coin exists on the blockchain network. This dramatically reduces the barrier to making smart contracts mainstream, as users don’t have to convert their hard currency into cryptocurrency.
With a new ability to communicate across platforms, smart contracts will take on new roles yet to be seen. In their white paper, the ChainLink team speculates that these next-generation contracts will replace traditional digital contracts and offer a higher degree of assurance. Examples of ChainLink-enabled smart contracts involve traditional agreements being triggered by a wide range of data. For instance, a car insurance provider could penalize a client if the smart contract receives data from the car’s breaks that they are breaking too hard.

ChainLink Partnerships

The entire ChainLink project is very promising for smart contracts and cryptocurrencies, as their progress and current partnerships show both technical feasibility and interest from established institutions. They have already partnered with SWIFT to build a Smart Oracle, allowing smart contracts to communicate with over 11,000 banks that use SWIFTs technology. ChainLink has partnered with ZeppelinOS, a provider of open-sourced tools and software for smart contracts, as their oracle provider. Rumors of partnerships in the work abound and suggest exciting future developments in the smart contract world. 

The biggest rumor is a future partnership with Salesforce, a huge cloud computing company that sells its customer relationship management product and other cloud services. Salesforce is used by thousands of companies around the world, representing millions of smart contracts opportunities. They are also a tech behemoth, and would likely help expedite the middleware’s development.


ChainLink is an extremely ambitious and promising platform that will result in smart contracts moving further into the mainstream. This is no small matter. The proliferation of smart contracts will save millions of dollars annually, reducing fraud, embezzlement, and other financial crimes. 

Their autonomous nature means that many clerical positions will be obsolete. Their security and decentralization mean many auditing positions will also become unnecessary. ChainLink’s current efforts are going to lead to a safer, more resilient, and faster economy.