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1/ @SergeyNazarov recently gave an excellent presentation on how @Chainlink is creating a fundamental shift in the way contractual agreements are crafted and secured

Welcome to the Evolution of Smart Contracts and Cryptoeconomic Security: A Thread 👇
#Chainlink $LINK
2/ Before we dive into the details, let's set the context for just how instrumental contracts are in our daily lives

Contracts are written agreements between multiple parties that enable humans to collaborate

Everything you own exists because there was a contract involved
3/ First we had the Social Contract, this created the initial foundation of our modern society

Settlers of the new world in the 1600s (including the Mayflower) had a social contract between each other to ensure their survival and set the ground rules of their new civilization
4/ The chart on the right in the above screenshot shows the Preston Curve

This shows that as economic activity increases within a society (enabled by contracts), so too does the average life expectancy

Contracts fundamentally enable humans to live longer healthier lives
5/ The second major advancement was the Commercial Agreement

These agreements defined the specific details of how independent entities collaborate and how benefits are distributed

The settlers were only able to sail to the new world because they had an agreement with investors
6/ These commercial agreements have evolved over time in how they allow people to cooperate and even how the contract is maintained

Stone contract of ownership -> Papyrus contract of employment -> Wooden contract of debt obligation -> Paper contract of incorporation
7/ Contracts enable economic progress and greater rates of production to occur

People can shift from focusing solely on survival to more human activities like art, music, poetry, science, and more

The Dark Ages were called as such, due in large part to a reduction in contracts
8/ Agreements over time evolved into technologically enforced contracts

From Telegraphs to Telex Machines to Computers to Blockchains, these contracts enabled rapid progress to occur and have allowed humans from all over the world to collaborate and innovate together
9/ Digital Agreements seek to achieve automation between participants using performance data from the Internet

Simply put, these contracts have completely revolutionized the way we live our daily lives

We can now purchase anything we need from a handheld piece of glass & metal
10/ However these Internet based agreements are far from perfect

Centralization of an agreement's execution allows select entities to achieve great power over others through gate-keeping, rent-seeking, conflicts of interest, and more

This siphons much value away from contracts
11/ Smart Contracts, on the other hand, are an evolution of digital agreements that are highly decentralized and reliable

These contracts are inherently tamper-proof and level the playing field ensuring no single party can censor or strong-arm counterparties in an agreement
12/ Smart Contracts are available to everyone in the world regardless of geolocation or a countries legal system stability

Many farmers in developing nations do not have access to insurance against "acts of god" meaning even a single crop season without rain can bankrupt them
13/ Smart Contracts create a parallel legal system that is technologically enforced to ensure proper execution

Through the addition of external oracles, Smart Contracts can now enable such use-cases like insurance that fundamentally require off-chain data in order to execute
14/ In this section Sergey dives into the blockchain oracle problem and how @Chainlink has been built from the ground up to solve this fundamental issue

In order to avoid repeating myself, the thread linked below is where I covered these slides in detail
15/ If you haven't already, I recommend taking a glance at that thread and then coming back here for a deep dive on binding service agreements, cryptoeconomic security, different forms of staking, and the positive feedback loops driving adoption :)
16/ In essence, Decentralized Oracles validate off-chain data from the real world to ensure tamper-resistance, accuracy, and reliability to trigger smart contracts of any value

Without oracles, 90%+ of #DeFi as we know it today (defipulse.com) simply would not exist
17/ On-chain Service Agreements are binding contracts between a data requester and a node operator ensuring high quality data and data delivery

I.E. metacontracts (contracts about contracts)

These agreements set the stage for cryptoeconomic security through staking
18/ Oracle solutions without Service Agreements suffer from undefined data quality and data delivery terms

Additionally without credentials management such oracles can only fetch data from low quality open APIs

Chainlink nodes have been architectured to avoid such pitfalls
19/ Nodes stake their $LINK as collateral in Service Agreements, which can be slashed for any predefined malicious or unwanted behavior (e.g. downtime, outlier data, etc)

This ensures nodes have "skin in the game" in both that specific oracle network and Chainlink as a whole
20/ Implicit staking is holding an asset whose value can decrease based on deviations from a protocol run by you and others

By being a #Bitcoin miner, it is more profitable to be honest than to be malicious because of the implicit staking from holding large amounts of mined $BTC
21/ Explicit staking is putting down a deposit, that may be lost if only you deviate from a protocol

This is the type of staking most people recognize (e.g. Proof of Stake) and is an alternative approach to securing a blockchain rather than using Proof of Work
22/ Chainlink's cryptoeconomic security derives from both implicit and explicit staking, but is not a blockchain

Instead of staking to produce blocks and earn a block reward, CL nodes stake to ensure the proper validation and delivery of external data and get access to user fees
23/ When a PoS blockchain node acts malicious according to protocol rules, its stake is eaten by the network and forever burned

When a Chainlink node acts malicious, according to the terms laid out in the service agreement, that stake can go directly to the harmed users
24/ Taking into consideration all of the above context, the Chainlink network really is like a well-oiled autonomous machine

User fees are pooled and used to pay specific node operators in specific oracle networks who have staked $LINK and have delivered accurate data on-time
25/ As adoption of the Chainlink framework grows, so too does the pool of user fees

Through a governance contract, this surplus of user fees can be used to pay for more nodes within an oracle network and/or compensate those nodes for higher security like staking more $LINK
26/ These fees drive a positive feedback loop

This begins with new Chainlinked smart contracts securing a higher amount of value
Creating growing user fees from those new smart contracts
Driving increasingly secure nodes to compete for those growing fees

And the cycle repeats
27/ External data also drives a positive feedback loop

New Chainlinked smart contracts securing a higher amount of value
Creating increased usage of real world data, events, and payments
More Data Providers see value in selling their data through Chainlink

And the cycle repeats
28/ These two cycles actually feed into each other creating a exponentially increasing flywheel affect

Adoption of #Chainlink is amplified and every stakeholder benefits, users, nodes, and data providers alike

-> More contracts -> more fees -> more data -> ... -> ad infinitum
29/ These cycles not only grow on their own, but @Chainlink is supercharging this process through the Chainlink Grants program by incentivising the creation of

• Node Reputation Tools
• Blockchain Integrations
• Developer Tools
• API & Data Integrations

Growth goes vertical
30/ If any of this speaks to you on a fundamental level, be sure to get in touch with the @Smart_Contract team, either for an Chainlink integration and/or to work with the highest quality team in the space :)
31/ I hope you enjoyed this thread my frens and now have some more context on the history of contractual agreements, cryptoeconomic security, staking, and how positive feedback loops of growth/value enable an entire new industry of externally connected smart contracts to blossom!
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