As the demand for smart contracts increases, Chainlink’s modular oracle for the Substrate framework aims to power developers and define applications with reliable off-chain information and pricing data needed to attract projects to Polkadot and Kusama.
Rapid growth in Defi and smart contracts attract a new layer of trust
As the smart contract revolution continues to gain traction, the cracks and flaws in the existing infrastructure that supports these transactional protocols become more apparent. Among the top issues facing smart contracts, cost and security are the top factors in the spotlight.
To continue to grow and scale these unique protocols without just addressing the shortcomings that accompany them, smart contracts will need to be effectively “smarter.” However, given blockchain validation constraints, which are intended to preserve stability and security, there is a barrier to off-chain information by design.
With regard to smart contracts, the satisfaction of contractual conditions may depend on external data (such as prices, for example), which may not be available on the corresponding blockchain that hosts the contract itself. In addition to creating a unique headache for developers, it restricts the use cases of smart contracts.
Chainlink chimed in with a response among pioneering solutions after introducing “oracles” to the blockchain universe. The main idea behind oracles involves connecting trusted external data sources to smart contracts, providing the missing link between the worlds on and off the chain.
The adoption of smart contracts depends on the access and availability of data
Just like an API can connect two separate systems and share information, Chainlink can connect smart contracts to external data sources in the same way. Similar to the premise that centralized information sources may have a bias or bias, the idea behind Chainlink is to decentralize the inputs and outputs of information. This helps maintain the commitment to creating open source resources for developers that cannot be compromised by a single controlling entity.
One of the main applications of Chainlink is price information, especially in the realm of decentralized finance applications (defi). Lending and lending protocols like Aave already get their fee pricing information from Chainlink, helping to inform smart contract decisions and conditions. The architecture of oracles is such that they effectively provide another layer on top of existing blockchains, which means that they do not compromise the integrity or security of the first layer.
Still, the oracle has many more applications besides defi. You can extract all kinds of information, including weather conditions, sports scores, and changes in economic data, to name a few. To drive these protocols and ensure greater adoption, smart contract access to off-chain data resources will be paramount.
Ever since the Chainlink Oracle launched on Ethereum in 2019, it has been a mainstay among popular defi projects. Now, the oracle is adapting for other blockchains as the project tries to maintain its agnostic stance. The latest iteration, designed for Polkadot and Kusama’s Substrate development framework, will act slightly differently than previous versions.
Unlike the Ethereum version of Chainlink, which has nodes that report price information, the Kusama and Polkadot parachutes can individually determine whether they want to adopt Chainlink’s price data. By including its specific module, called a “palette,” developers can effectively plug Chainlink data into their respective smart contract applications.
For Polkadot Defi projects like Acala, this means that your parachain can choose to incorporate the oracle in a modular way. However, parachain projects that do not need access to the data will not need to integrate the module. By extension, this means that they will not need to assign any blockchain resources to Chainlink.
As defi’s projects seek greener pastures for more affordable scalability and cost structures, Polkadot and Kusama’s Chainlink integration will make it even easier for smart contract developers to make the leap. Meanwhile, a lot of alternative projects focused on Oracle like Band, DIA, API3 compete with Chainlink to offer similar services.
How do you see information outside the chain of oracles affecting the use of smart contracts? Let us know in the comment section.