Smart contracts are an ingenious way of operating many different blockchain services, yet they have struggled to bring off-chain data seamlessly on-chain. Chainlink and its native LINK token operate in this service gap, acting as the bridge between blockchains and this extremely valuable wealth of real-world data.
What is Chainlink?
Chainlink is a blockchain network that feeds information to other networks and applications. For example, a finance application that needs real-time price data of different currencies could take its price information from Chainlink.
This type of network is called an Oracle, and Chainlink is the biggest oracle in the crypto space. It validates and sends data to computer programs called smart contracts, allowing them to perform their own functions.
Chainlink uses a variety of different Oracle systems from around the world, which each seek out off-chain data and validate the information onto the system. These Oracles and their various node operators each receive LINK tokens in payment for completing their task in a timely and accurate fashion.
Each Oracle operator node is positively incentivized to provide timely accurate data which increases the overall value of Chainlink and its native LINK token. In addition, Chainlink nodes are disincentivized from providing misinformation by way of Chainlink taking the LINK tokens they have staked if the data is found to be incorrect.
An accurate smart contract platform is crucial to the success of many blockchain networks, making Chainlink a particularly useful project. In this article, we will explore just some of the use cases of Chainlink and its vital functions.
Chainlink Use Case: Decentralized Finance Oracle
Decentralized Financial, or DeFi for short, is a hugely important use case for Chainlink and its native token LINK. DeFi, while still being comparatively small when compared to regular financial systems, is still valued at an impressive $100Billion and is forecasted for considerable growth.
DeFi services include new means of trading, lending, staking, and speculating. All of these DeFi services use many smart contracts which in turn require vast amounts of data. Chainlink provides this data through its widespread Oracle network, which seeks, validates, and cross-references the data and then feeds it onto a public blockchain allowing for the smart contracts to self-execute.
By working efficiently and providing good service to the DeFi businesses, Chainlink garners a better reputation, better fees, and overall better value for its token. This benefits the Oracle operators and their staked LINK enjoys an increase in value.
Acala is a DeFi hub that functions through the popular Polkadot network and has fully integrated Chainlink Core into its system for its price feeds. This provides Acala users with up-to-date data points through Chainlinks trusted Oracle system, allowing them to conduct business efficiently and with multiple layers of security. Other DeFi hubs such as Aave, Compound, and Rari Capital also use Chainlink Core.
Chainlink Use Case: Insurance
Chainlink has a use case in insurance by feeding data about real-world events to blockchain networks. For example, farmers might insure their crops against the threat of drought, and Chainlink could scan news and weather reports and trigger smart contracts to pay out if a drought is occurring, skipping the red tape and human error currently involved in the insurance business in a more trustless manner.
Smart contract applications can be thought of as pre-specified agreements that are fulfilled when certain conditions are met, and a smart contract insurance platform requires decentralized oracles such as Chainlink oracles in order to function.
Insurance Needs an Overhaul
The global insurance industry is roughly estimated to be valued at $650Billion with different sub-sectors of insurance, from health, industry, retail, and business.
Each of these sub-sectors requires a great deal of middle management and bureaucracy to function, leading to all manner of undue cost, information mishandling, and long wait times. Many have noted that the industry is in dire need of an overhaul and new blockchain systems such as Chainlink may provide a much-needed disruption to the market.
Blockchain systems such as Chainlink may offer a greater degree of decentralization when it comes to the interrelation between the insurer and the insured by offering a more direct relationship between the smart contract creators.
As it stands, insurance companies maintain a vast amount of power in the relationship. Fair insurance coverage depends entirely on these companies acting in a fair manner, which is often against their best interests in terms of profit. Smart contract oracles like Chainlink could potentially change many different aspects of this relationship and offset malicious behavior, primarily by the integration of smart contracts.
But these smart contracts can only be as good as the data that defines them, therefore services such as Chainlink will be vital towards this forecasted shift in the market and stands poised to profit from its usage.
Chainlink Use Case Example: Arbol
Arbol is a prime use case example of the potential of blockchain-based insurance and of Chainlink in general. Essentially Arbol is a blockchain that uses smart contracts to enact the parameters of the insurance coverage. But what makes Arbol so interesting is that it utilizes the Chainlink system to feed ongoing real-world data from the oracle network to enact the contract.
Crop insurance for example is greatly benefited by this system. By feeding live meteorological data onto the blockchain, Chainlink allows Arbol to provide scientifically backed coverage in the case of unexpected crop losses due to weather.
Previously this type of coverage would involve a large degree of costly haggling with companies and drawn-out litigation about the exact nature of the weather event, but with Chainlink, the contract is confirmed via its decentralized oracles that feed hard data into the system.
Chainlink and its Future
Many different industries are in dire need of change, being inefficient, unsafe, or unreliable, and many of these industries have been resistant to evolution. Blockchain technology may well hold the capacity to disrupt many of these markets and provide new answers to old problems, but only if it can offer real-world, grounded solutions to the current market’s many challenges.
With systems such as Chainlink and its native token LINK, this disruption may well be possible. Chainlink’s capacity to bridge off-chain data to on-chain systems is an invaluable service and may well prove to be massively profitable as blockchain adoption grows to challenge more and more of the old systems.