Chainlink: Connecting the on-chain and off-chain worlds | Kishan Kumar | Coins | December 2023

Seedhainlink is a platform that allows blockchains to communicate with the outside world. It is a decentralized oracle network that provides smart contracts with tamper-proof and highly available connectivity to the highest quality data feeds from around the world. It acts as a bridge between the secure but isolated blockchain world and the dynamic world outside. Real data.

But why would we want blockchain to be connected to the outside world?

This is a valid question. Consider the most popular cryptocurrency in the world. Guess Bitcoin and you will be right. The Bitcoin blockchain does not allow direct communication with the outside world. Why is that so? All the data needed is on-chain. For example, Bitcoin’s most important function was to break down boundaries between users around the world. You can send Bitcoin to anyone without having to explain anything. So what matters is which transactions are stored on-chain in some way.

The Bitcoin blockchain focuses primarily on records. work It’s all about maintaining a secure, tamper-proof ledger of who owns which bitcoins! No flashy items are allowed. But things changed with the switch to Ethereum. When Ethereum launched, one of its biggest selling points was its ability to run on-chain programs called smart contracts. If the ETH price exceeds $3000, you can deploy logic such as sending 1 ETH to Ram. Unlike Bitcoin, the ETH blockchain was Turing complete.

But as we know, “With great power comes great responsibility.“ Soon the contracts required to access external data will become meaningful. Think about what a contract can do if it only has access to transactions. not really. They must have access to data from the outside world.

Before Chainlink, smart contracts were limited to the information available on the blockchain itself, which was inherently limited. This means it cannot react to real-world events, has no access to real-time data such as weather or economic figures, and cannot interact with existing payment systems.

Here’s how it works:

• Limited features: Smart contracts can effectively operate in a closed loop, relying only on predetermined data stored on the blockchain. This severely limited its potential application.
• Centralized Trust: Many attempted solutions involved centralized oracles. This means that a single entity controls the data feed, creating a single point of failure and vulnerability. This strongly contradicts the main advantage of blockchain: decentralization.
• Security issues: Integrating external data often involves risky workarounds, compromising the security guarantees of the blockchain.

Chainlink gives smart contracts the power they have always lacked. It kept them alive. To learn more about what a smart contract is, see the following articles:

Let’s understand the importance of Chainlink through an example. Let’s say you are an avid traveler who is eagerly awaiting your next trip to Japan. We booked our flights, packed our bags, and excitedly counted down the days. But what happens when unexpected delays throw your travel plans into disarray? This place flight delaya decentralized insurance protocol powered by Chainlink, has come to the rescue.

The problems we all face are: Let’s be honest: travel insurance comes with complicated conditions, hidden fees, and lengthy claims processes. They often deny your claim when you need it most with vague statements that you may have never heard while applying for insurance.

Delays and cancellations can add salt to the wound by leaving you frustrated and out of funds as you navigate complex claim forms and wait weeks for resolution.

FlightDelay’s solution using Chainlink: Here’s how FlightDelay rewrites the rules:

• Decentralized and transparent: Built on blockchain. FlightDelay operates without a central authority, reducing operational costs and increasing transparency. Eliminate dependency on traditional insurance companies by participating directly in a community-driven pool.
• Data-Driven Decision Making: Chainlink is critical for collecting real-time flight status data directly from trusted sources such as airlines and airports. This data is reflected in smart contracts, eliminating the need for manual invoicing or human intervention.
• Automatic payment: If the flight delay exceeds a predefined threshold, Chainlink oracles will check the data and trigger automatic payments through smart contracts. No more waiting weeks for your claim to be processed. You can receive immediate and direct rewards.

Chainlink’s role in FlightDelay demonstrates its potential to revolutionize the insurance industry. Similar decentralized insurance protocols are emerging for a variety of scenarios, including weather-related crop losses, health insurance driven by biometric data, and parametric insurance for natural disasters.

All of this was possible thanks to Chainlink. This is just one example of how Chainlink is actively being used today. Sectors as diverse as financial services, DeFi, gaming, NFT collectibles, climate markets, insurance, and more rely heavily on Chainlink to get the right data.