Talking about Chainlink, it can be defined as an Oracle-based network that saves real-world data information in its system in smart contracts based on blockchain. Chainlink network will guide you by providing an efficient decentralized network platform to verify the data information received from the Oracles. With the help of Chainlink, the traditional platforms enable modern economies to reach out and connect to the rising blockchain industries.
The mechanism of Chainlink lies in analyzing the problems with the Oracle that is in turn centralized in nature, feeding the only point of failure and gives amicable solutions through the “middleware” that does not concern the decentralized platform of Oracle.
What do you understand by a Blockchain Oracle Problem?
The Blockchain Oracle Problem arises from oracles’ inability to verify the consistency of their data. Furthermore, the chance of malfunction and deliberate tampering differs depending on the type.
The Blockchain Oracle Problem is separated into two sections, as stated below:
- External data cannot be accessed by blockchains on their own.
- Using centralized oracles defeats the purpose of smart contracts while also introducing serious privacy concerns.
The single point of failure is introduced again because oracles lack the distributive characteristic. Because oracles are based on non-deterministic data, trustless peer-to-peer contact must not be accepted. Therefore, implementing oracles through smart contracts may jeopardize consumers’ faith in blockchain, valued higher than older networks.
A system based on an oracle can also fail in two ways. First, assume the oracle is trustworthy and cannot be tampered with. In such a situation, the data on which it is functioning may have been tampered with, in which case, despite being a trustworthy device, it may feed incorrect data to smart contracts.
On the other hand, the oracle may fail to function effectively on the smart contract due to a malfunction or malicious tampering if the information is trusted and confirmed. Thus, it can be proved from a game-theoretic standpoint that the larger the value of the smart contract, the greater the motivation to undermine the system.
When real assets are linked to the blockchain via smart contracts, the oracle problem arises. However, in decentralized situations (e.g., blockchain/smart contracts), linking a physical asset to a digital asset, whether fruit, automobiles, or houses, is crucial. Let us understand how this problem of Blockchain Oracle is solved by the Chainlink in the next section.
How Chainlink overcomes the problem of Blockchain Oracles?
Chainlink operates on a similar model or structure to that of a blockchain. There is a decentralized network of autonomous oracles that gathers data from diverse sources, aggregates it, and gives a validated, single data point to the smart contract, accelerating its execution and removing any single point of failure.
Beyond decentralization, Chainlink integrates numerous layers of security to ensure that consumers can trust the oracle network. Chainlink is a flexible framework for constructing and maintaining Oracle networks, allowing users to create and connect to customized Oracle networks completely separate from other Oracle networks.
The Chainlink Network’s components that help in solving the problem of Blockchain Oracles are mentioned below:
Chainlink’s source code and functionality may be independently evaluated for security and reliability and contributed to its improvement because it is an open-source technology.
Allows nodes to securely store API keys and handle account logins. It allows smart contracts to access data from any external device or API, including those protected by a passcode or credential.
Decentralization at the node and data source levels assures that no single node or data source is a single point of failure, giving consumers confidence that data will be delivered as promised and will remain tamper-resistant.
Signing of data
Users may know which nodes transmitted data and evaluate their history to determine their overall performance by requiring nodes to cryptographically sign the data they supply to smart contracts.
Users can receive enforceable guarantees regarding their off-chain data requests by constructing binding on-chain contracts between the demanding smart contract and the oracle supplier specifying the rules of the oracle service and accompanying penalties/rewards for performance.
By incorporating signed on-chain data into reputation systems, users can make informed judgments about whether nodes are trustworthy, rather than relying on a range of measures such as completed jobs, clients served, average reaction time, and so on.
Enabling nodes to strengthen their security and reliability to users through the acquisition of various certifications can provide essential assurances such as KYC, geographic location of the node, and security inspections of their facilities, among others.
Additionally, Chainlink is developing enhanced oracle computations, oracle and data privacy, and much more. Chainlink oracles enable more powerful smart contracts by ensuring the same security and credibility as the blockchain.
How Chainlink overcomes the problem of Blockchain Oracles? was originally published in DataDrivenInvestor on Medium, where people are continuing the conversation by highlighting and responding to this story.