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Guide to Chainlink

Introduction to Chainlink

Chainlink connects smart contracts on blockchains with external data and systems. Web3 applications are built without direct access to real-world data. In order to interact with the real world, applications require a way to access that data. Chainlink provides this much-needed service through decentralized oracle networks (DONs) across a number of blockchain and Layer-2 networks. Each DON is responsible for sourcing, formatting, and providing real-world data to smart contracts. By creating this highly secure bridge between the real world and web3, Chainlink helps make on-chain economies more open, efficient, and transparent.

Chainlink’s services include:

  • Price Feeds: Chainlink provides real-world financial market data used to power the DeFi economy. A price feed is tasked with continuously reporting the accurate price of a given asset by aggregating market data from many sources. Chainlink has established itself as a critical component of DeFi infrastructure and is the leading oracle provider (measured by total value enabled) across web3. Chainlink Price Feeds can be found here.

  • Verifiable Randomness: Verifiable randomness enables the creation of dynamic NFTs based on a provably fair random number generator for on-chain gaming applications, ordering processes, or random selection. Examples of the types of dapps using Chainlink Verifiable Random Function (VRF) include NFT generators for metaverses and games like Aavegotchi on the Polygon chain. The popular web3 game Axie Infinity also uses Chainlink’s Verifiable Randomness to help generate random traits for Origin Axies. The full list of blockchains supported by VRF can be found here.

  • Proof of Reserve: Proof of Reserve provides verifications of collateral that backs stablecoins and cross-chain tokens to establish supporting value for a token. The Proof of Reserve feeds are limited to blockchains with contract addresses, and can be found here.

  • Automation: Bots provide autonomous DevOps services such as conditional and timed execution of smart contracts. An example is MakerDAO’s Keeper Network using Chainlink Automation to help trigger price updates.

  • Cross-chain communication: The Cross-Chain Interoperability Protocol (CCIP) is being built to provide a universal, open standard for developers to build secure services and applications that can send messages, transfer tokens, and initiate actions across multiple networks.

How Chainlink Works

Chainlink utilizes a network of independent oracle node operators to help source, verify, and deliver data and off-chain computation to smart contracts. When a smart contract requires information from external sources, it queries a Chainlink oracle. The Chainlink oracle sources and verifies the requested information from multiple external data sources.

There is a diverse set of oracle operators supplying the answers to the data requests, decentralizing the process and preventing any tampering. The answers each oracle node provides are aggregated, verified, and then sent back to the smart contract. Chainlink oracles constantly update the data. The smart contract receives new information as soon as it becomes available through the Chainlink Network. Chainlink oracle solutions are structured in three layers:

  • Data source: The backbone of any oracle, price feed or otherwise, is the underlying data source. For price feeds, raw price data is sourced from exchanges and then aggregated by various professional data feed providers to then be ingested as the off-chain input. For a proof of reserves example, the data source behind a stablecoin may be a bank statement accessed via a trusted API.

  • Node operators: Node operators bridge the gap between off-chain data to an on-chain attestation. Mechanically, they do this by retrieving data from off-chain sources and putting it into a format that can be used by smart contracts, responding to requests for data from smart contracts, and providing the data. Oracle node operators need to maintain uptime requirements to ensure that the data provided is accurate and timely.

  • Oracle network aggregation: On-chain, a smart contract verifies and aggregates answers from each oracle (updated by node operators) to form the latest trusted answer, which can then be queried by other contracts, such as DeFi protocols.

Here's an example of the different layers for Chainlink’s price feeds:

Source: Chainlink

How to Participate in the Chainlink Network

With hundreds of apps, data providers, node operators, blockchains, and open-source community developers contributing to Chainlink’s growing network, there are ample opportunities to participate. 

Companies or individuals can launch nodes, provide data, stake, create APIs, or create apps that work with Chainlink’s services. Since Chainlink is a permissionless protocol, anyone can participate at any time. 

Why is Coinbase Cloud Running Oracle Nodes?

Chainlink is helping grow the web3 ecosystem by providing a bridge between web2 and web3. Access to timely, reliable, and accurate data is tablestakes for web3 applications that exist today, and for new use cases that will be built in the future. We are excited to work with Chainlink to support this critical service.

Coinbase Cloud is in a strong position as an oracle node provider:

  • Multi-cloud, multi-region infrastructure: Our infrastructure is multi-cloud and multi-region to support competitive uptime, ensuring our oracle nodes remain live and handling data requests without skipping a beat.

  • Experience running nodes in high-throughput, high-performance networks: We have deep experience running nodes and managing blockchain data infrastructure in high-throughput networks including Aptos, Solana, Ethereum, Algorand, Flow, and more, positioning us to seamlessly manage data requests.

  • Enterprise security: We are part of Coinbase, a publicly traded company that upholds high standards for the quality, reliability, and security of our products.

Interested in learning about Coinbase Cloud’s oracle product roadmap? Reach out to us at cloud-sales@coinbase.com

This document and the information contained herein is not a recommendation or endorsement of any digital asset, protocol, network, or project. However, Coinbase may have, or may in the future have, a significant financial interest in, and may receive compensation for services related to one or more of the digital assets, protocols, networks, entities, projects, and/or ventures discussed herein. The risk of loss in cryptocurrency, including staking, can be substantial and nothing herein is intended to be a guarantee against the possibility of loss.This document and the content contained herein are based on information which is believed to be reliable and has been obtained from sources believed to be reliable, but Coinbase makes no representation or warranty, express, or implied, as to the fairness, accuracy, adequacy, reasonableness, or completeness of such information, and, without limiting the foregoing or anything else in this disclaimer, all information provided herein is subject to modification by the underlying protocol network. Any use of Coinbase’s services may be contingent on completion of Coinbase’s onboarding process and is Coinbase’s sole discretion, including entrance into applicable legal documentation and will be, at all times, subject to and governed by Coinbase’s policies, including without limitation, its terms of service and privacy policy, as may be amended from time to time.