Blockchain Isolation

Among oracles, Chainlink is the undisputed king, with no major competition in sight. The use cases are endless, and many of your favorite applications may already use them without you knowing. Thousands of dApps have already integrated them into their code, with dozens of other non-crypto-based companies signing up to be a part of it. Chainlink services are perhaps the most integral utilities on the Ethereum platform today, and growing to new chains and sectors everyday.

Insurance contracts, tokenized assets, casinos and video games, and so many more, all rely on the essential information chainlink provides them with. If you are at all interested in becoming a developer, a user of dApps, or just a fan of cryptocurrency you should know what it is and the role it plays in the decentralized ecosystem. It isn’t the flashiest idea, and is often overlooked, but its value cannot be understated.

Hold on, when I submit my transaction i’m sending it over the internet, how can the blockchain not connect to the internet

Yes, this is true but it’s not about the node, its about the blockchain itself. Follow me here. When you Send a transaction to a node, what you are really doing is sending a request for the node operator to perform a series of calculations and publish the result of those calculations to the blockchain. The node operator is really running a program called the Ethereum Virtual Machine (EVM). This program does all the heavy lifting of the blockchain. The node operator takes your incoming request and feeds the information into the EVM. The EVM takes this information, processes it, and adds the resulting info to the blockchain. The EVM is deterministic. This is a term in computing that means that it has a very specific number of results, and given a specified input will always return 1 specific output. The EVM can only take the input given to it by the node operator (which it got from you) and perform computation on it.

Why can’t the EVM use the internet capabilities of the host device to connect to the internet like my web browser does?

If you are a developer or have a CS background, it works like this…

The EVM is really just a stack machine with a series of opcodes used to determine stack operations. When you Send a transaction you’re really sending a series of opcodes for the EVM to read and execute, where each has its own gas cost. These opcodes are different from the traditional ones you may see in assembly-code compiled from a C-program. They don’t have the same stack structure, pointers, or access to system libraries, etc. that would allow it to initiate things like TCP-handshake. When you deploy a smart contract you are really deploying the byte-code of the contract in a format that allows the EVM to read the contract as a series of opcodes. When you submit a contract transaction request you’re sending a series of specific opcodes for the EVM to process. It is because of this very limited series of actions that the EVM cannot use other system resources like wifi or ethernet. The EVM is only capable of processing those opcodes in the order it reads them and performing the relevant stack operations.

It’s designed this way for a number of reasons. One is that the EVM is made in a way such that it can be implemented in a variety of different languages and platforms without access to various system-specific resources. This makes it easier to develop in a decentralized way. These kinds of internet operations can also be very expensive in terms of performance. If a block contains hundreds or thousands of contract operations and transactions, to make thousands of internet-requests would add an enormous amount of computational overhead, even if all requests ran with perfect efficiency and zero downtime/slowdown. From a security perspective, making it essentially air-gapped makes it much more difficult and computationally expensive to exploit too, as all exploits must be from within contracts using carefully crafted payloads paid for in Ethereum. The EVM was made to be as minimal as possible and this is the result of that. This is a complicated topic that requires a complex series of other articles breaking down a variety of complex computer-architecture and networking-based subjects beyond the scope of this article. For now, just accept the premise.

Can’t the node operator just make the request I want, for me, and pass the info to the EVM?

No. This is because of the cryptography libraries that make cryptocurrency possible. When you send a transaction, you are sending a digital signature using the Elliptic-Curve-Digital-Signature-Algorithm (ECDSA). Your private key (generated from your seed phrase) signs the transaction to ensure authenticity of the transaction. The blockchain checks the signature against your known public-key and the transaction request. For the node operator to send additional-information with your transaction (from say an API request) would mean to introduce new information to the transaction. The resulting hash would not match the digital-signature and would be rejected because it could not verify the integrity and source of the transaction.

The solution to this problem is simpler than you think, two transactions, and two smart contracts. An oracle is simply a secondary contract (used as a helper), watched off-chain, that provides information back to the first, through the help of a real-world person. It is simply someone in the real world, watching the blockchain and waiting for someone asking for information. If you’ve been watching Marvel’s What If, think of it like the watcher, except they actually do interfere.

Or, if you’re not a dork like me, think of it like Reddit. You post a question, and someone replies on the public thread with the answer you are looking for. Except, in this case, the threads are smart contracts.

The process goes like this:

As you might have noticed, the oracle service provider has to submit a transaction, and pay the gas cost associated with every request. This can be expensive for them, so they naturally want some kind of compensation for the gas they’re spending, alongside the cost of running the nodes and software. This is where the chainlink token (LINK) comes into play. For every request made to an oracle, the person making the request has to pay the oracle-operator in the LINK Token. The amount paid per-request is determined between the operator and the requester. This creates a form of market where things like bulk-pricing are common for frequent-use. The payment is made at the time the request is made. This means the contract making the request needs to have a sufficient number of LINK in its possession at the time it makes the request to the oracle. If it does not, the oracle request will fail.

The LINK token’s sole purpose is to be exchanged for the use of oracle services. When you make a Chainlink request, you must pay the oracle-operator in LINK tokens only. That means that with a set amount in circulation, the price of the token is a reflection of the demand for oracle-services. That may change in the future, but right now that is the only use for the token. It can be traded like any other token, but being traded in exchange for off-chain information is its main utility.

Now that you know how oracles work, it’s useful for me to walk you through some of the exciting ways these can be integrated now into Ethereum and a variety of other blockchains.

Let’s imagine you’re a farmer, who wants to take out a crop insurance policy in the event of a bad harvest. You sign a policy with a company that says “if it rains less than 10 inches this year, then the policy should pay out X amount”. You and the insurance policy provider create a smart contract on the Blockchain. The provider puts in the payout up-front, or a request to retrieve it from somewhere else should the need arise. Every month you (the farmer and policy holder) send a certain amount of money (the premium) to this contract. The contract holds it and then slowly pays it out to the insurance provider. If the policy-holder misses a payment, the contract takes note and won’t pay out any benefits until payment continues. Every few weeks the contract makes a request to a chainlink node for some weather information on the area defined in the contract. It may ask a weather service API, or it may use things like IoT devices (like an internet-connected rain collector out in your field). It gets the information from the oracle, and sees how much rain has fallen. If it’s less than the pre-defined rules of the policy, then it takes steps to pay out the specified amount to the policyholder.

This is obviously a very simplified detailing of events, but it has a few benefits:

These are just a few of the benefits but it illustrates that there’s a lot of value in decentralizing things.

While Chainlink might seem like the greatest thing since sliced bread, i’d like to list some of the potential pitfalls and tradeoffs in the spirit of fairness and due-dilligence.

I’m not going to make price predictions anymore, because I don’t think it matters. It should be obvious by now that I think this is a token worth buying, and encourage you to do so as well. Chainlink is revolutionizing the blockchain. It is arguably the single-most important coin you have never heard of. The state of Ethereum would not be where it is today without chainlink. With what they contribute to the Dapp-ecosystem, the sky is the limit. What new applications of it we will see in the coming years are anyone’s guess, but this technology will be at the forefront of what helps drive the world towards mass-adoption of cryptocurrency. The number of apps utilizing its libraries and services, and companies signing up to provide data is growing by the day, and a critical inflection point is upon us. I’ve had the opportunity to play around with many of the apps that Chainlink is helping empower, and its truly a marvel what the community has built and how far the Dapp ecosystem has come in a few short years.

I have NOT been compensated to promote any specific program or service. All opinions expressed are mine and mine alone. I am not a financial advisor nor am I responsible for any cryptocurrency lost due to the improper use of any application or program discussed here. Do your own research before using or investing in any service or application.

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