ChainLinkGod Podcast - Blockchains, Chainlink, and Hybrid Smart Contracts with Crypto___Oracle and ChainLinkGod
Primer: Join ChainLinkGod and Crypto Oracle as they bring listeners through the entire journey of what does trust mean and how it evolves into contractual agreements. Understand the failings of contracts and how blockchain technology and, subsequently, Chainlink oracle networks resolve this fundamental issue.
What Trust Means
Magnitude of belief that you have in something
Trust is not definitive (as opposed to truth)
Trust and collaboration is how society work together around a common cause to achieve its goals
Each individual specializes in a specific task and this maximizes value for everyone
If people don't trust each other, it creates conflict and society worsens as a whole
Establishing Trust In Society
Reputation and relationships
However, reputation and relationships are not scalable and not a tangible recourse for disputes
This is why contracts came into being. Contracts allow us to scale globally and clearly define obligations and situations and the rewards and penalties for not doing things
On Contracts
Contracts become even more important as society increases in complexity
A lot more things could go wrong and there would be a cascading effect across many different sectors
Today, contracts are facilitated by a middleman
There are clear benefits of a middleman:
Both parties can trust a neutral party in the middle
Reduce friction (deal with the middleman instead of finding people to barter with)
With this arrangement, people trust the middleman instead of the counterparty
The middleman who creates the contract has a massive information asymmetry and could gain an upper hand in contractual agreements
Middleman can siphon a lot of value away from you
As the middleman becomes larger, there is a network effect of advantages that they can get
Blockchain Technology
At a high level, the goal of blockchain technology is to disintermediate the middleman and replace them with a decentralized trust network
Levels the playing field for everyone who wants to engage in some contractual agreement or economic activity
"So in this type of decentralized network in which takes the form of blockchain, there isn't a central coordinator, meaning there isn't a centralized point of failure. So there's no specific entity who can censor you, there's no specific entity who can strong-arm you or screw you over an agreement or refuse to give you access to an agreement."
- ChainLinkGod
Features
A transparent, public network that is permissionless and censorship-resistant
A decentralized network. Even if half the network goes offline, it still keeps running
Consensus Mechanisms
"So essentially, when you boil it down, you're using financial incentives to ensure honest consensus and to continue the reliability of the network."
- ChainLinkGod
Blockchains use a consensus mechanism to reach a consensus among nodes and to maintain their immutability and censorship resistant aspects
Proof of Work consensus mechanism involves giving up something of value (energy) in order to contribute to the network. Each computer (known as a miner) is repeatedly performing math functions over and over again. The winner who guesses the right number gets to produce the next block
Proof of Stake consensus mechanism involves staking a specific amount of money to participate in the network
Need a financial reward to incentivize people. If the reward is high enough, people will compete for it and this increases decentralization of the network
Evolution Of Blockchains
Started out as money (Bitcoin)
Launch of Ethereum and smart contracts in 2015
Anyone can deploy their own smart contracts
These smart contracts can interact with one another, creating a lot more permissionless innovation
How Does Chainlink Fit Into Blockchains
Blockchains are quite limited in their functionality
They need to connect with external inputs, access computations that are not possible on the blockchain, and execute outputs to the external world
Oracles enable smart contracts to connect with the external world
Determinism In The Blockchain
Everything a blockchain does is deterministic (e.g. verify if a specific address has enough funds to make a transaction)
Real world data is non-deterministic (e.g. what's the weather in Argentina)
Users may get a different answer from the same source at a slightly different time
An Oracle network like Chainlink is a dedicated network that provides these inputs to the blockchain
Two benefits of having an Oracle network that is separate from the blockchain itself:
Directly connecting the blockchain to external networks exposes it to major attack vectors
If the oracle network fails, the blockchain does not fail along with it
How Does Breaking Consensus Look Like In The Real World
No new blocks are created because each miner fetches a different value from a data source and they cannot agree with one another
Ends up with a bunch of different forks
How do you determine which fork is the right one? This sums up the Oracle problem
Chainlink
Blockchain is a singular monolithic network with global consensus
Chainlink is a framework for building and connecting to decentralized Oracle networks that provide specific decentralized services
Oracle networks have to possess:
Security (tamper resistance, cannot be manipulated to send fake data)
Reliability (Provide data continuously)
"If you have an insecure oracle, you have the garbage in garbage out problem, which means any garbage data you give to a contract, it's not going to be secure, and you're not going to get the output that you expect."
- ChainLinkGod
How Does Chainlink Provide Guarantees Of Security And Reliability
Security:
Multiple oracle nodes with multiple data sources
No single point of failure
Reliability:
Have node operators such as Deutsche Telekom and GEICO
Strong incentive to be reliable as their reputation and future revenue is at risk
Important to have reliable nodes rather than lots of random nodes
Properties Of Chainlink
Very generalized framework
Heterogeneous. Millions of oracle networks could run at the same time without dependencies on each other
Chainlink is blockchain agnostic. Oracle client node operators connect to any blockchain directly. It does not have to route through Ethereum
LINK token is bridged over so people are using it natively on that blockchain
"So when we look at these like L2 networks, and these other more scalable, more server farm L1 networks, they can support a lot faster update frequency, meaning that a chainlink network on a scalable network is not bound by the speed of any other blockchain, it can operate at the native speed of that chain, and pay oracles at the native speed of that chain."
- ChainLinkGod
Cost sharing. Every user is pooling their fees to pay for a specific oracle service. Has an economy of scale effect
Chainlink oracle networks allow users to scale up and down according to the amount of security they require
Data providers running their Chainlink nodes and signing off their data ensures that data is not manipulated during the delivery. However, this does not prove that the data is correct
Core Value Proposition Of Chainlink
Allows developers to focus specifically on their core business logic
Do not need to dedicate developer resources, time, energy, money, auditing to create, monitor, and fund an oracle solution of their own
Three Layers Of Network Effect
Chainlink connects blockchains to external data sources
Chainlink connects blockchains to other blockchains
Chainlink connects off-chain systems to other blockchain systems using the blockchain as a trust anchor
Cryptoeconomics
Each oracle node is paid in and holds LINK tokens
Future revenue denominated in LINK. Hence, have a strong incentive to keep providing reliable services
If the network becomes corrupted, the funds in the smart contract would be lost and the native token will end up being devalued
Can have oracle network running the latest software client and then a backup node running a different code base. If the primary node were to fail, it just switches over to the backup node
Chainlink From A Data Provider's Perspective
Data providers want to sell their data to the maximum number of users as possible
They are more likely to use an established oracle network rather than integrate with an adhoc oracle network or create an oracle network from scratch
Node quantity
Node quantity cannot guarantee quality of data
Areas Where Oracle Network Use Is Limited
People who may want enterprise data but do not have access to it
Networks where specialized hardware is required but not economically feasible for node operators to use
Rebuttals Against Common Criticisms Of Chainlink
What If Chainlink Fails?
"I don't think many people understand this, well, what if Chainlink fails? Well, first off, it's already decentralized. So this is like what it is, people are like, oh, let's use an Oracle aggregator. It's like saying, let's back up Ethereum with Cardano. You don't need a backup of something that's already decentralized."
- Crypto Oracle
People don't realize that there is an automated failover system that is already in place
Shorting LINK To Attack The Network
Same thing has been said against Bitcoin and Ethereum
Not realistic and it's more theoretical than practical
Chainlink 2.0 Whitepaper
Introduction Of Hybrid Smart Contracts
An evolution of smart contracts
A combination of on-chain code and secure off-chain services from oracle networks
Today, most DeFi applications are hybrid smart contracts
Aave
Synthetix
Gaming applications
Arbol
In the future, there will be a shift from on-chain to off-chain. On-chain will be used as a settlement layer
Chainlink as the decentralized meta-layer, the interface connecting the on-chain and off-chain world
Not a zero-sum game. Oracle networks generate more value with the introduction of additional decentralized services
"So ultimately, I feel like Chainlink is like one of those things that kind of blends into the background. It's this low level infrastructure, which developers love, but the users may not necessarily see that because they're not developers, they don't use Chainlink directly. They use applications powered by Chainlink."
- ChainLinkGod
An Explicit Staking Model
Nodes put LINK as collateral
If they go offline or provide outlier data, they are automatically penalized
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