A Short Guide to Chainlink – WazirX Blog

The crypto industry has expanded quickly, with discoveries and technologies like currencies, trading software wallets, and exchanges. Chainlink is one of the crypto world’s breakthroughs. Let’s have an overview of what Chainlink is and other related topics.

What is Chainlink?

ChainLink is a decentralized oracle system. A chain (blockchain) is necessary to manage data in smart contracts. This situation greatly hampers their active dissemination. Furthermore, contractual agreements have no link to ordinary industries; thus, they cannot check the criteria stipulated in the contracts.

ChainLink oracles were built to interpret information from the outside into a format that the blockchain could understand. For example, suppose one of the criteria of a smart contract demands correct temperature information, a change in the status of a payment order, or pricing data for a specific period. In that case, the oracle will deliver it on the blockchain.

Oracles link digital contracts to the rest of the world. The breadth of smart contract applications will swiftly expand now that this possibility has surfaced. Many areas of the economy will be transformed due to the advancement of this technology.

Problem solved by Chainlink

Blockchains are fantastic because they employ math–cryptography, technical–to assure security, trust, and decentralization. The issue is that each blockchain is a separate reality.

The necessity to trust a source outside the blockchain to give correct information has always posed a risk when sending and receiving data.

To get information about event results or even the price of Bitcoin, you had to trust a source to speak the truth, not cheat, and not be compromised–creating a single point of failure. Chainlink is introduced here.

Working of Chainlink

Chainlink comprises two pieces that must communicate continually for the system to work correctly. The following are the two components:

  • The internal blockchain, on which the node operators are
  • The external off-chain from which oracles obtain their data

To comprehend how Chainlink works, you must first understand oracles. They’re the sensors that “live” outside of the blockchain. However, because they are digital DeFi devices, they are not in the real world. Instead, they serve as a link between the two ecosystems.

Let’s say two blockchain nodes place a bet on a real-world event, such as a sporting event or the outcome of an auction or election. Then, they set the winning criteria in a smart contract and wait for the result from a third party (oracle).

Off-chain data owners can contribute their data to Chainlink via feeds or APIs provided by node operators.

A decentralized network of many off-chain oracles arises at this stage to give the needed information. They connect to the Ethereum blockchain independently of one another and communicate the data they have. They receive LINK tokens in exchange for providing accurate information.

None of the entities would be able to enter information onto the blockchain without the oracles, and the smart contract would never be completed.

How to get hold of LINK tokens?

The Chainlink network employs an ERC677 token based on the ERC-20 token standard and allows for data payloads in token transactions. It’s also used to pay data providers that bring and translate data onto the blockchain and are compensated by the data buyer. When data suppliers or oracles submit bids, they set the costs for their services.

Pros & Cons of Chainlink


The chainlink cryptocurrency allows ETH and Bitcoin to collaborate, allowing payment providers like banks to participate. This is only one of the benefits of Chainlink; let’s look at the other benefits and drawbacks. One of Chainlink’s main goals is to decentralize smart contracts.

This will increase accuracy while also improving information security. Contract automation has been a focus of the SmartContract business, which created Chainlink, since 2014. Collaboration with significant corporations like Oracle, Google Cloud, and SWIFT boosts the project’s trust even further.

The LINK tokens are an excellent investment instrument due to their technological capabilities and the project’s long-term goals. The oracle network is in charge of creating a link between off-chain and blockchain transactions.


Chainlink is in grave peril. Chainlink is a fascinating endeavor that integrates on-chain and off-chain information by providing users with simple access to oracles and addressing one of the oracles’ main issues: dependability. The majority of issues have been resolved due to its design, but it will be possible to increase its efficiency.

Use Cases of Chainlink

More complex smart contracts are being constructed utilizing Chainlink oracles, which provide high security and dependability assurances on par with the blockchain.

Decentralized Finance (DeFi)

Many traditional financial products, like loans, payments, derivatives, asset equity, and others, are being implemented on the blockchain with smart contracts to improve security and transparency while lowering entry barriers. These DeFi apps use Chainlink to price assets, obtain interest rates, check collateralization, and more, allowing them to do tasks like issuing a loan at fair market value, automating dividend issuance, and settling an options contract.


On the blockchain, developers are also releasing smart contract-based gaming applications, which frequently include non-fungible tokens (NFT) as scarce digital collectibles. Many blockchain games require a source of randomness to produce unpredictable in-game events or choose the lucky winner of rewards. VRF is a randomness solution provided by Chainlink that creates randomness and distributes it to smart contracts so that users can establish it is fair and impartial, as neither players, game developers, or other entities can tamper with or manipulate the randomness to their benefit.

Future of Chainlink

One of the most advanced features of Chainlink’s subsequent releases will be off-chain networks built on top of oracles. Off-chain networks are designed to relocate most of the smart contract platform’s complicated computing processes away from the primary layer.

Ethereum’s gas costs, for example, have been growing in response to increased demand for processing power, threatening to render the network unusable for smaller transactions. By making the computing process for DApps more economical and easy, Chainlink 2.0 seeks to assist customers in overcoming this challenge.

Final words

Chainlink is one of the top applications in the crypto market for converting off-chain sources to smart contracts on the blockchain. It offers a variety of benefits to consumers while also posing specific hazards. Before investing money in crypto, one must thoroughly understand digital currency, as it correlates to highly variable rates.

Disclaimer: Cryptocurrency is not a legal tender and is currently unregulated. Kindly ensure that you undertake sufficient risk assessment when trading cryptocurrencies as they are often subject to high price volatility. The information provided in this section doesn’t represent any investment advice or WazirX’s official position. WazirX reserves the right in its sole discretion to amend or change this blog post at any time and for any reasons without prior notice.

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