Chainlink is a decentralized oracle network that provides information that certain smart contracts need to perform their designated functions.
Smart contracts are blockchain-based, decentralized virtual agreements that can execute automatically when certain conditions are met. They are computer protocols designed to enforce, verify, or apply an agreement. These digital contracts can automate contractual agreements while getting rid of the need for lawyers, notaries, and other related services.
Chainlink gathers information from a decentralized network of information providers referred to as oracles. To ensure that the data is accurate, each oracle stakes a certain amount of collateral. If the oracle provides inaccurate data, it will be forced to forfeit that collateral. In this way, oracles are monetarily incentivized to give information that accurately reflects what’s happening in the real world.
Oracles have become a useful tool in the decentralized finance (DeFi) space, as much of DeFi is powered by smart contracts that need to source their prices from a decentralized place. This might be one factor that has led to the continued rise of coins like LINK.
What is the Chainlink Network?
Chainlink provides real-time price data to smart contracts. The smart contracts in question then use the data to perform some other function — swapping one token for another, for example.
LINK was launched in 2017. The idea came from a previous project of its parent company, SmartContract.com. They had once tried to develop an oracle solution for blockchains, but failed to do so in a decentralized manner. Centralized oracles are thought to be unreliable because if they source false data, it will be recorded in the blockchain and there will be no way for anyone to fix it.
Blockchains are designed to get their data from on-chain information. This makes them more secure and tamper-resistant. But sometimes, smart contracts require off-chain data from the real world. Things like fiat currency exchange rates or any other external type of data can only be integrated on-chain through oracles like Chainlink.
What is LINK Coin?
Chainlink crypto (LINK) is used to keep the network running smoothly. LINK is intended to provide an incentive for those who participate in the Chainlink network to source reliable data. This helps ensure that the smart contracts being fed Chainlink information will receive accurate data.
Smart contracts can use LINK to pay for the information they need, and oracles can use LINK as collateral.
There are 1 billion LINK tokens total. They exist as ERC20 tokens on the Ethereum blockchain.
Chainlink Price
As of early November 2021, LINK was the 15th largest cryptocurrency by market cap, according to data from Coinmarketcap.com . The price was around $33, triple its $11 price at the start of 2021. The all-time record high LINK price was $52.19, reached on May 8th.
In September 2017, about the time the project launched, the LINK coin price was less than $0.17.
What Can You Use LINK Coin For?
LINK can be traded on exchanges, where traders try to buy low and then sell higher later to make a profit. It’s important to be mindful of crypto rules and regulations and cryptocurrency taxes when trading.
Programmers also use Chainlink crypto to fund the oracle-driven information that powers some smart contracts. If someone wants to create a decentralized way for people to swap one cryptocurrency with another, as with Kyber Network (KNC), for example, they need real-time data on what the appropriate exchange rate would be. This information comes from oracles like Chainlink.
Should You Invest in LINK Coin?
Altcoins are generally considered to be speculative investments that carry high risk. There are few other investments available to the average person that carry greater risk and volatility.
Recommended: What Are Altcoins?
If an investor has done all the research necessary to understand what the Chainlink cryptocurrency is, how it works, and what it was designed for, then those with the necessary capital and risk tolerance might choose to take a chance on LINK. But as always, it’s common investment wisdom to never risk more than you can afford to lose.
Benefits of Investing in LINK Coin
One potential advantage that could work in Chainlink’s favor is that the network tends not to compete with other types of cryptocurrency. Instead, it helps to add value to other projects, particularly those in the DeFi space.
While there are other oracle networks out there, and likely will be more in the future, Chainlink is currently among the most well-known and trusted brands in this area. Should they continue to be a leader in the ecosystem, the LINK token might potentially see increased growth and adoption.
Disadvantages of Investing in LINK Coin
The drawbacks of LINK are largely the same as those of other altcoins. Volatility can be extreme and liquidity might not always be there when traders need it most. Competing projects could arise and see faster adoption, at which point Chainlink crypto could become irrelevant.
It’s also worth noting that thousands of altcoins have failed in the past for various reasons, with their values dropping to zero.
How to Buy LINK cryptocurrency
Buying LINK is not unlike buying any other cryptocurrency. Here is a simplified rundown of the basic steps.
1. Create an exchange account. After learning how crypto exchanges work, an investor will want to create an account with an exchange that offers trading for the Chainlink cryptocurrency. Many prominent exchanges trade Chainlink, including Kraken, Coinbase, and CEX.io.
2. Deposit either Bitcoin or some fiat currency, depending on what trading pairs the exchange has available. Buying crypto directly with a credit card is also an option on many exchanges, although this tends to incur higher fees (not only from the exchange — credit cards often treat crypto purchases as a cash advance, which comes with additional fees).
3. Buy LINK. Simply select the trading pair that includes LINK and the currency held in your account. For example, if a user had Bitcoin and wanted to buy LINK, they would select the pair called “BTC/LINK.” If they had dollars, it might be “USD/LINK.” For a stablecoin like USDC, it might be “USDC/LINK.” Enter a buy order for the desired amount of coins at a desired price.
Alternatively, on exchanges that include order books in the user interface (like Binance), simply select the sell order (sometimes called an “ask” order) with the lowest price and buy from it.
After having acquired LINK tokens, advanced users may want to consider moving their crypto off of an exchange and into a hardware wallet that supports LINK. This method of crypto storage provides additional security for long-term holdings.
The Takeaway
Decentralized oracle networks like Chainlink are designed to provide a trusted decentralized source of information for smart contracts. For investors, LINK token is just one more potential cryptocurrency they might decide to trade.
Photo credit: iStock/Dmytro Duda
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