Coin Spotlight
7 Jan 2022

Chainlink (LINK) in Spotlight

Deepan Datta

The crypto market has witnessed a staggering rise, showcasing its potential to bring a new order to the world system. But, currently, the crypto market and traditional market are working and growing in silos, making it hard for users to avail themselves of the benefits of a decentralised ecosystem. 

This is where decentralised oracle networks come into play. They act as a bridge between on-chain and off-chain networks to exchange information between the two worlds smoothly. And, Chainlink is the big player in the segment

Its native token LINK has witnessed a strong price growth, moving up from $12.57 (1,012.26) to reaching a peak of $52.88 (₹4,150.44)—price growth of over 300% in the last 12 months. 

Key Coin Metrics

  • Coin Rank: #17
  • Coin Market Capitalisation (as of 6th Jan 2022): $43.94 billion
  • Market Dominance: 0.56%
  • Coin Economics: Fixed Supply
  • Coin Total Supply: 1 billion LINK
  • Coin Circulating Supply: 467 million LINK (47% of total supply)

Technical Analysis: LINK Token Price Analysis

Chainlink analysis
source: tradingview

LINK seems to have reversed its downward trend on the daily chart and is poised to move higher. Also, strong volumes in the last two sessions indicate a build-up of strength.

Due to weakness in the broader market, LINK may experience a weakness in the short term. However, the 20 day SMA line or the median line in the Bollinger band (orange line) might provide strong support. Decisively, it needs to break above the $25.50 (2197) to continue moving higher. 

If it breaks below the $19.40 (1,623) level, negative development may surface and push the prices down.

A Brief About Chainlink

Chainlink is a decentralised blockchain-based oracle network that enables universally connected smart contracts. The very problem with existing smart contracts of different blockchain platforms is that they cannot import data from external data sources or off-chain data and convert it into an on-chain format compatible with smart contracts. 

For example, PAXG is a gold-backed stablecoin, which needs to track the prices of gold at every moment. But as gold is a traditional asset class, PAXG needs price data to be imported through blockchain oracle, which converts the real-world price data feed to a smart contracts compatible format. 

How does Chainlink Works?

Trusting single and centralised oracles can create a huge problem for any blockchain network, raising the risk of failure and compromised systems. It gets difficult to trust the data provided by the oracle node. And this is where Chainlink makes a difference. 

Chainlink is a decentralised network of nodes that collects and confirms data from external/off-chain blockchain sources and makes it smart contract compatible. For example, if 10 nodes collect the same information and protocol records data mismatch in 2 nodes, it becomes easier to spot the faulty node and discard their information. They have incorporated the very feature of blockchain technology into their oracle network. 

The whole system is incentivised using LINK tokens, in which nodes providing correct information are rewarded, and faulty nodes are punished by forfeiting the staked LINK tokens. This is the critical element of the Chainlink to keep the network trustless and decentralised. 

Utility of LINK Token

LINK is an ERC-677 token and drives the whole Chainlink network. ERC-677 is an extension of ERC-20 tokens that integrated transfer and call functions. 

The requesting smart contract holder (the smart contract that requests information from the oracle network) pays the Chainlink node operators in LINK tokens for their services based on the data requested. 

And, the node operators stake the requisite amount of LINK tokens in the Chainlink network to become a part of the network and showcase their commitment towards building a truly decentralised oracle network. 

Chainlink conducted an ICO in September 2017, in which 350 million LINK tokens were offered for sale, representing 35% of the total supply. Of the remaining supply, 350 million or 35% is earmarked for distribution to node operators and 300 million or 30% of the total supply is held by Chainlink. 

Chainlink Future Growth Potential

Since its launch in 2017, Chainlink has witnessed strong growth and adoption. More than 300 crypto projects, mostly DeFi projects, depend on Chainlink’s decentralised nodes for data feeds from external sources. 

For example, blockchain-based prediction markets, crypto-synthetic asset platforms, and NFT platforms depend on blockchain oracles to connect smart contracts with the outside world.

Synthetix Network (SNX) uses Chainlink’s blockchain oracles to get price feeds for crypto synthetic assets on the platform. 

For the crypto market to grow and have long term sustainability, it cannot function independently of the traditional and centralised marketplaces. As a crypto project, Chainlink brings an important technology through which both worlds can communicate and brighten the prospects of adopting blockchain technology and cryptocurrencies. 

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Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.

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Deepan Datta

Content Writer

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