Chainlink ecosystem features for web3

Data feeds – free data sources for smart contracts. How do they work and what value do they give to web3 solutions?

While oracles are often credited with the downright omnipotent ability to provide data for contracts, in reality they have quite a few limitations and risks. I encourage you to read my posts if you are interested in this topic. It’s valuable knowledge for anyone interested and involved in the blockchain industry.

The decentralized oracle usage model involves asking several independent oracles for data outside the blockchain, and then determining the final value on its own, based on multiple answers (from multiple oracles). A smart contract implementing the described strategy will unfortunately incur high costs. Querying an oracle requires a fee in exchange for completing an off-chain query.

Data feeds are data “produced” by oracles, published on the blockchain, available to be read for free by smart contracts. What kind of data? For example, cryptocurrency prices (BTC/USD, ETH/USD, etc.) – very valuable data for DEFI (decentralized finance) solutions. Other data is, for example, cryptocurrency reserves held by some blockchain solutions. There is also data on NFT prices.

Who produces data feeds? The community, you can say that this is a sponsored activity. Very many projects use this data, so it is needed. The data that data feeds provide and the quality of the data varies by technology provider/ oracle network.

Here is a dashboard describing a particular data feed of ETH/USD prices on the Chainlink network: https://data.chain.link/ethereum/mainnet/crypto-usd/eth-usd open_in_new . Among other things, the page shows the number of oracles that provide data (e.g., 31). The final, single value of ETH/USD available for contract reading is recorded on the blockchain based on 31 oracle responses. Due to the widespread use of this data, it is of high quality and safe to use in web3 solutions.

Chainlink, is the technology and network that I mention each time in the context of oracle. What is Chainlink? What products does it provide?

Chainlink ecosystem for web3

Chainlink – the largest blockchain oracle network on the market. What features does it provide? How will you use Chainlink in a web3 solution?

This post summarizes a series of posts on oracles (Oracles) in blockchain. I encourage you to read for a quick overview of the concept, challenges and security of providing off-chain data for blockchain.

Chainlink is the guiding technology and oracle network in the blockchain market. Mainly for EVM and Solana. Chainlink is currently creating several products that can be used when building a web3 solution. Here they are.

Chainlink oracles is the classic and simplest way to access off-chain data from a smart contract. Using Chainlink, we can run our own independent node to provide data to the contract, or we can use existing Chainlink nodes in the network for querying. Chainlink oracle enables HTTP queries, but also its own integrations (e.g. with databases).

Data feeds – various data, provided by oracles, stored in the blockchain and available for free to all smart contracts. E.g. price data for currency pairs (BTC/USD).

VRF – random data for smart contracts. If a web3 solution requires a random value, e.g., during random NFT allocation, it can use VRF to obtain such a value. VRF targets “random” correctness guarantees using cryptographic treatments.

Chainlink automation – secure and trusted ability to automatically call contract functions. By default, blockchain contracts do not have the ability to “run” themselves, and sometimes there is a need to do so. The chainlink network will guarantee that the function will run on its own at a certain time, or under certain conditions.

Most functions offered by Chainlink require a fee in the LINK token. The fee goes to the network participants implementing the functionality, who make this oracle network decentralized. The Chainlink ecosystem is broad, network participants are numerous, and the high capitalization of the LINK token makes Chainlink considered secure and widely used. However, it is worth remembering that the security of the oracle, is the responsibility of the cryptoeconomic model and there is no other guarantee of correct operation. There are other oracle providers on the market, and some web3 solutions simply use “proprietary” solutions (most often centralized 😉).