What Is Chainlink Backed By? Investors and Guarantees

Published: January 10, 2024 | Last Updated: December 12, 2023

Markos Koemtzopoulos

Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.

In this post, I explore what Chainlink is backed by. I mean this both in a literal sense as in what ensures that the data provided by Chainlink is correct and figuratively as in who are the investors backing Chainlink labs, the team behind Chainlink. 

First, let’s start with the technology.

what is chainlink backed by

What is Chainlink?

Chainlink is a decentralized oracle network that connects smart contracts to real-world data. Chainlink nodes aggregate data from different data providers and then participate in a decentralized network to come to a consensus on the state of the outside world. For example, you could have a bunch of chainlink node operators providing price feeds. Blockchains that have smart contracts such as the Ethereum network don’t have access to the price of the underlying asset in the real world. Prices are determined by markets which is not something the blockchain is privy to. But if a smart contract relies on price as a trigger for it to take an action then it can pull this information from the chainlink network. 

Apart from price feeds, Chainlink focuses on any other area where accurate data is required such as weather data for insurance providers, off-chain reserves for stablecoins, and data points from IoT sensors and Web APIs. Chainlink’s latest iteration Chainlink 2.0 also offers off-chain computation to save resources and develop more innovative products. They also have a verifiable random function to generate random numbers which is useful for NFT and gaming platforms plus they have also launched CCIP. CCIP stands for cross-chain interoperability protocol and is a way for blockchains to send messages and tokens to each other.

See here for use cases and examples from major industries.

What ensures the data is correct? 

Data providers are incentivized to provide data as they get paid in LINK tokens. LINK is an ERC-20 token with a fixed total supply of 1 billion tokens. 

Chainlink takes the median price across providers and ensures that nodes come to a consensus off-chain before they deliver their data point. See Where Chainlink Gets Its Data for more.

What backs up Chainlink’s data?

Apart from decentralization, Chainlink has also introduced staking. Chainlink staking v0.2 opened in December 2023.

Node operators can stake LINK to offer performance and security guarantees against the quality and timeliness of the data they are providing.

If they are reported to fudge the numbers their stake could get slashed. Keep in mind though that node operators are reputable companies such as telecoms, DevOps, and infrastructure providers who also have a reputation for upkeep.

Community members can also delegate their LINK tokens to be staked and there are plans for a reputation score to come into place to allow which node they wish to delegate their LINK to. See How to Get Chainlink (LINK): a Beginner’s Guide

What problem does Chainlink solve?

Chainlink solves what’s known as the oracle problem. The problem with Oracle solutions before Chainlink was that you were depending on a single data source. For example, I could write a smart contract that fetches the price of Shiba Inu from Coimarketcap using their API. However, what happens if Coinmarketcap gets hacked as has happened in the past? Chainlink ensures its data is correct by sourcing it from multiple external sources. It then uses its network to reach a consensus. Also see What Is Chainlink Crypto?

Where does Chainlink get its data?

Chainlink receives its data from a network of oracles. These are global enterprises that collect and aggregate information and share it on Chainlink’s decentralized network. 

Who is behind Chainlink? 

Chainlink was launched in 2017 by Steve Ellis and Sergey Nazarov. They wrote the first white paper with their chief scientist, Ari Juels, a professor at Cornell University.

Investors

The Chainlink team made 4 rounds of funding but their last one was in 2017 when they raised $33 million through their ICO (initial coin offering). In total Chainlink has 38 investors all of whom invested in the early rounds. 

FAQ

Is Chainlink backed by Oracle?

No Chainlink has nothing to do with Oracle Corporation, the computer software company. When we say that Chainlink is an Oracle service we mean that it allows smart contracts to connect to external data sources. These data providers are known as oracles. Chainlink is a network of oracles.

Does Google use Chainlink?

Yes, Google is one of Chainlink's partners and they make their public data set available to Chainlink.

Is Chainlink built on Cosmos?

No, Chainlink is built on top of the Ethereum blockchain. Its LINK token is an ERC-20 token.

Why is Chainlink so valuable?

In total Chainlink has enabled more than 9 trillion dollars’ worth of transactions and secured $21 Billion in deposits. It is used by the vast majority of decentralized applications.

Is Chainlink an ERC20?

LINK is Chainlink's token and is an ERC-20 token. Chainlink is a decentralized network of oracles and Chainlink Labs is the team behind Chainlink.

What blockchains does Chainlink work on?

Chainlink is blockchain agnostic which means it works across all blockchains.

How does Chainlink make revenue?

Smart contracts pay data providers directly in LINK but Chainlink Labs do not take a cut. However, about a third of all LINK tokens in circulation belong to Chainlink Labs which gives them a massive war-chest from which to fund projects. In addition, Chainlink Labs can offer add-on services for which customers need to pay.

How many projects use Chainlink?

It is estimated that more than 1600 blockchain projects use Chainlink in their smart contracts enabling more than $9 trillion dollars worth of transactions.

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Markos Koemtzopoulos is the founder and main writer of ElementalCrypto. He has been a lecturer at the University of Nicosia on cryptocurrencies and DeFi and has taught two courses on crypto and blockchain technology.