Chainlink is a decentralised oracle network created to provide a link between real-world data and smart contracts on the blockchain. When a smart contract needs some real-world data, it can connect to Chainlink to get it. LINK is the cryptocurrency used to pay for that data, but you can also simply buy or sell LINK like any other cryptocurrency.
Wait, what are smart contracts?
Before we dive into Chainlink and LINK in more detail, let’s start with smart contracts. These are programs created on a blockchain (like the Ethereum blockchain) and they run automatically when certain conditions are met.
For example, let’s say someone wants to raise funds for a project. If they don’t raise enough money to meet their fundraising goal after one month, they won’t continue with the project; they will return any funds they’ve received to the investors. The fundraiser can create a smart contract with these conditions: “if this project’s Ethereum address doesn’t have a balance of 3 ETH on this date and time, send any payments received back to the wallets they came from.”
The investors in our example don’t need to simply trust that the fundraiser will stick to their word. Smart contracts live on the blockchain, which means they are open and can’t be changed. Investors can see the conditions themselves, and the programmed outcome will happen automatically if those conditions are met.
Why is Chainlink helpful?
Smart contracts have a big limitation: because they live on the blockchain, they can only work with data that’s available on the blockchain.
What if we wanted to create a smart contract that automatically refunds airline tickets if a flight is cancelled, or pays sports betters their winnings if a certain football team wins the game? The Ethereum blockchain doesn’t know anything about air travel or sports.
That’s where Chainlink comes in. When a smart contract needs real-world data, it can make a request to the Chainlink blockchain network to fetch that data for it.
How does Chainlink work, and what is LINK used for?
The Chainlink nodes (computers connected to the Chainlink network) receive the request for real-world data. They use special software programs, known as oracles, to get the data that the smart contract needs.
The people running those Chainlink nodes get paid in LINK for handling these data requests. They also make a LINK deposit when they first join the Chainlink network, and they lose some LINK if they provide incorrect data - so this incentivises truthfulness and accuracy.
While LINK is the native cryptocurrency that keeps the Chainlink network running, you don't need to be a node operator to get LINK. It’s also available to buy or sell like any other coin.
Tip
Keen to explore Chainlink a bit more? You can learn about Chainlink basics and get all the latest cryptocurrency news on Luno Discover.
Want to know how to buy, sell, send, or receive LINK? We’ve got answers in the following help articles:
This information is not intended to be nor does it constitute financial, tax, legal, investment or other advice; nor is it a call to trade. The information is intended as general market commentary for information purposes only. Before making any decision or taking any action regarding your finances, you should consult a qualified Financial Advisor.