Is Chainlink a Good Investment?

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Contributor, Benzinga
June 8, 2022

Is Chainlink a good investment for you? You can buy LINK on eToro.

As demand for decentralized products and services continues to skyrocket, Chainlink has positioned itself as the go-to decentralized oracle network (DON) for integrating real world data into smart contracts efficiently and securely.

Chainlink is one of the hottest cryptos on the market right now, with a market cap over $9.5 billion as of April 2022. But, what is a DON, and is Chainlink a good investment? Let's find out.

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Decentralized oracle networks allow smart contracts on Ethereum, Cardano and Polkadot to act upon real-world information. Because blockchain transactions are irreversible, they need to be sure they are acting upon accurate data. This is where an "oracle" comes in.

An "oracle" is any source of reliable data. For example, The Weather Channel can be viewed as an Oracle for historical weather information. But users of blockchain are trying to remove the need for a trusted third party, this is where Chainlink comes in.

Let's say a farmer purchases drought insurance. Should the yearly rainfall not exceed a specified level, the farmer will receive a payout. You can automate this with a smart contract. However, Ethereum’s network cannot measure rainfall, so a trusted source must ensure accuracy. Many companies aggregate weather data, but using 1 of them as an oracle requires trusting a centralized party, defeating the purpose of decentralization entirely. 

Decentralized oracle networks provide the solution by offering a network of decentralized parties paid for their service. The “truth” gets determined by consensus (a majority vote) on the Chainlink network. Should parties attempt to provide fraudulent information, they risk losing their authority on the network and their source of revenue. Decentralized networks of properly incentivized individuals can provide effectively “trustless” sources of truth.  

Another example of valuable real world data that could be integrated by Chainlink are fiat prices. Once again, the Ethereum network cannot be required to report the value of government-based currencies, but they're incredibly useful for trading. Chainlink may ask the network, "What is the price of 1 US dollar?". The network will submit their answers, and so long as the majority is not compromised, the price of 1 US dollar is returned by the network.

Smart contract sports betting, options trading, shipping confirmation, supply chain management and countless other applications lie ahead. Chainlink’s core product involves integrating real-world data within smart contracts through DONs. 

Chainlink will charge insurance companies, exchanges and other applications for providing this valuable Oracle data.

Chainlink doubled its active developer count between Q3 of 2019 and 2020, according to the Electric Capital Developer Report, making it one of the fastest-growing projects in the blockchain space. 

Chainlink had its initial coin offering (ICO) at the end of 2017 for $0.11. In 2018, it briefly surpassed $1 before falling back down until 2019. During the summer of 2020, Chainlink had an early start to the bull run. It reached $17 at a time when the rest of the crypto market was just beginning to wake up from a deep slumber. On May 10, Chainlink set an all-time high of $51.46.

Chainlink 2.0

The Chainlink 2.0 whitepaper was released in April 2021, detailing the future plans of the project. 

The 2.0 upgrade will build off-chain networks on top of the oracles to handle some of the heavy computational lifting for the Ethereum mainnet. This benefits Ethereum, where large demand for computing power on the network has driven gas prices to unsustainable levels. Moving some transactions off the mainnet will reduce gas fees.

By handling some of the computing off-chain, running smart contracts will become cheaper and faster, without losing any of the security of the layer 1 base chain (where the DON is rooted). After the work is handled off-chain and the oracle is consulted, the contracts are placed back on the Ethereum layer 1 chain for safekeeping. 

Chainlink’s continued innovation and solid growth signals good things to come for the DeFi project and the industry as a whole. 

Chainlink’s promise to integrate real world data onto Ethereum opens up a new world of possible applications for Ethereum’s smart contracts. As these networks continue to scale and make access more affordable, more and more potential applications will become economically viable. 

Decentralized finance is even younger than the still-young blockchain technologies. There is no inherent limit on the value that Chainlink could provide the world in the future. As long as new data and a desire for growth in technology exists, Chainlink will continue to add value. 

As you may have imagined, Chainlink isn't the only oracle provider in the blockchain space. Its main competitor, the Band Protocol, originally launched as an ERC-20 token. It now lives on the Cosmos network. Band also offers oracle services and has received funding from Sequoia Capital. 

Chainlink made headlines after adding to China’s Blockchain-based Service Network (BSN). This state-backed BSN includes a variety of partnerships with blockchain projects that the state believes can push its entrepreneurial network. This will more than likely lead to Chainlink use for a variety of Chinese DeFi products and services. 

Chainlink’s token LINK gets supported by the vast majority of exchanges including (but not limited to) Coinbase and Gemini. Setting up an account on one of these centralized exchanges takes about 5 minutes and will require your Social Security number, drivers license and photo verification. For more information on how to buy Chainlink specifically, see our guide on How to Buy Chainlink.

Once you purchase Chainlink, you’ll want to make sure you store it securely in a wallet. While you can keep it in your Coinbase or Binance exchange wallet, it's a good idea to transfer it to a wallet, like the Ledger Nano X (a hardware wallet) or MetaMask or Coinbase Wallet (software wallets). 


What is an Oracle?


An oracle is a service that provides data on specific events where a market exists for it. 


Is Chainlink Decentralized?


Chainlink’s decentralized oracles means that no one central person or authority could tamper with the oracle data. This allows for fully decentralized products to access real world information without relying on a central source or point of weakness. 

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