A case for LINK

Overview

  1. Smart contracts / programmable money is steadily rising in usage today. However, each blockchain is limited to the data available inside its ecosystem. In order to be used for more things, there needs to be a way to “bridge” (LINK) data into a blockchain from outside with some standard of trustworthiness. This is called the Oracle Problem.
  2. LINK allows purchasers to request data. Providers then bid to supply it and lock up their own money in a “stake.” If the purchaser is satisfied with the quality and timeliness of the Provider, the Provider keeps their stake and they are paid the bid. If not a portion of the stake is destroyed and the global reputation of the Provider immediately suffers. Other Providers can then re-bid to supply the data instead.
  3. LINK is already one of the most depended upon projects in cryptocurrency. Most projects in the Decentralized Finance (DeFi) space use LINK for external data. Almost any blockchain can increase their usefulness by integrating with secure external data through LINK.
  4. LINK is supported and used by several high-profile partnerships including Google and the SWIFT banking network itself. This is the system currently used to facilitate most dollar transfers across most banks worldwide.

Major Bullish Arguments

  1. The problem that LINK addresses is shared by almost every network, app, and token in all of crypto.
  2. LINK is already used by most projects in crypto. Many of the smartest and most capable developers in the world are working either directly on LINK or integrating it with their own blockchains.
  3. LINK provides transparency both for itself and for its Providers and so is unlikely to compromise the trust of its users.

Major Counterarguments

  1. Trusting external data delivered by a Provider in smart contracts inherently makes blockchain less secure.
    • While this is perhaps true to some extent, it also vastly increases the total usefulness of the entire cryptocurrency ecosystem. LINK creates an open market of trusted parties where honest and timely participation is rewarded through game theory (incentive structures) similar to cryptocurrencies themselves.
  2. Too few Providers can participate in the system for a given data request, creating a central party. Isn’t this what blockchain is trying to eliminate?
    • This is mostly a question of fees. For a sufficiently high fee any number of data sources should be able to be provided for almost any data feed. In practice, it is true that many projects currently rely on relatively few Providers that may be participating in a given niche. This has been exploited in the past on several DeFi projects and so the industry is becoming much more careful about using several Providers for data feeds.
  3. LINK’s solution to the Oracle Problem may be eclipsed by other competitors.
    • While this could happen, at this moment it does not appear to be the most probable outcome. LINK is (on and off) a top-10 crypto by market cap. It is used by almost every crypto project in the DeFi space and maintains a high degree of user satisfaction. Its current implementation has proven sufficient for most needs today and it has a large team of developers available to improve the protocol in the future.

Price Potential

  1. It seems reasonable to assume that the total market value in Oracles such as Chainlink should be proportional to the value in cryptocurrencies as a whole. The current market appears to agree with that assessment as LINK is now a top-10 crypto. However, it is difficult to know what that proportion will stabilize at over the years as the industry makes more and more projects.
  2. It is possible that the value of LINK may be more closely tied to the size of transaction fees (and specifically on Ethereum) than market cap. Though this correlation currently exists, it is unknown if it will remain so.

Major Risks

  1. The value of Oracles depends on the fundamental theses of both Bitcoin and Ethereum being realized, though not necessarily on those blockchains. Like all of crypto if Bitcoin suffered a major catastrophe the price would plummet, but even in this scenario the industry would address almost any conceivable roadblock.
  2. LINK’s thesis is closely tied to the entire Decentralized Finance (DeFi) movement. If a major project in DeFi were to suffer an attack so fundamental as to question the feasibility of DeFi the price of LINK would almost certainly plummet. However, it is more likely that any conceivable attack would be eventually addressed and the market would recover.
  3. It is supported by major companies including Google. If crypto began to eat into Google and other major tech companies bottom line LINK could be made less useful to those who aren’t liked by the existing tech elite. While this could happen, it seems unlikely because LINK is completely open source and used by so many other companies.
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