Thread by @The_ReadingApe

Chainlink is not just about price feeds. There are many other services that @chainlink provides as well. In this episode of the ChainLinkGod Podcast, @ChainLinkGod and @Crypto___Oracle dives deep into each and every Chainlink service, unpacking how they work. 👇

@chainlink @ChainLinkGod @Crypto___Oracle The episodes covers the following 6 areas:

1️⃣ Price feeds
2️⃣ Proof of Reserve
3️⃣ Application Programing Interfaces (APIs)
4️⃣ Verifiable Random Function (VRF)
5️⃣ Keepers
6️⃣ Blockchain Abstraction Layer for Enterprises

@chainlink @ChainLinkGod @Crypto___Oracle Why do smart contracts need oracles? 🤔

🔹 Blockchains are isolated networks
🔹 Oracle problem: Blockchains have limited ability to verify/impact external systems
🔹An oracle is a piece of infrastructure that deals with data in the external world and syncs it with the blockchain

@chainlink @ChainLinkGod @Crypto___Oracle What is Chainlink?

🔹 A protocol. A blockchain agnostic framework for building oracle networks
🔹 A network. Multiple independent Oracle networks can run in parallel at the same time
🔹 A bunch of pre-built solutions that give developers plug and play Oracle solutions

@chainlink @ChainLinkGod @Crypto___Oracle Price Feeds

🔹 Primary use case for Oracle networks is to provide financial market data to the DeFi ecosystem
🔹 The growth of new price feeds led to the blossoming of different financial protocols

@chainlink @ChainLinkGod @Crypto___Oracle Structure

🔹 On-chain reference contract that stores the current price of a specific asset
🔹 Price is continually updated by Chainlink oracle networks
🔹 Users ping the contract to get the data within 1 transaction
🔹 Price feeds are updated based on a deviation threshold

@chainlink @ChainLinkGod @Crypto___Oracle Data source

🔹 Chainlink price feeds are pulled from professional data aggregation firms - firms that provide data to leading enterprises and trading desks
🔹 Each data source that Chainlink pulls from is data that is already aggregated from multiple sources🔔

@chainlink @ChainLinkGod @Crypto___Oracle 🔹 Basing price feeds on 1 exchange could be fallacious due to changes in liquidity in that particular exchange
🔹 Chainlink solves the problem by having market coverage across exchanges
🔹 Data aggregator firms are incentivized to be reliable as they are paid subscriptions

@chainlink @ChainLinkGod @Crypto___Oracle 🔹 Each Chainlink Oracle node is not fetching data from one data aggregator, but from multiple data aggregators, and then taking the median value between them

We made an infographic to help you understand the concept🤓

@chainlink @ChainLinkGod @Crypto___Oracle 🔹 Chainlink allows users to use multiple oracle solutions
🔹 Chainlink's circuit breaker design:
1️⃣ Primary feeds from Chainlink
2️⃣ Use an on-chain data feed
🔹 Circuit breaker would raise a flag if there's a large deviation between the two

@chainlink @ChainLinkGod @Crypto___Oracle Proof of Reserve

🔹 Fiat-backed stablecoins, cross-chain tokens, asset-backed tokens are backed by assets
🔹 Problem: Unable to verify the specific amount of reserves backing that asset
🔹 Proof of Reserve: Oracle network verifies the collaterals on the backend system

@chainlink @ChainLinkGod @Crypto___Oracle 🔹 Introduces transparency
🔹 Uses 2 reference feeds: 1️⃣ Proof of Reserve 2️⃣ Proof of Supply
🔹 To check if the collateralization is met, the data from the supply feed is compared against the data from the reserve feed

@chainlink @ChainLinkGod @Crypto___Oracle Use cases

🔹 Some stablecoins are backed by USD in a bank account
🔹 Proof of Reserve mitigates the damages caused by fractional reserve
🔹 Prevents custodian from minting token -> depositing tokens to a protocol -> borrowing other tokens -> running off with them

@chainlink @ChainLinkGod @Crypto___Oracle APIs

🔹 Chainlink enables smart contracts to connect to external data sources called APIs 🤝
🔹 External adapters: Modules added to Chainlink Nodes to communicate with APIs
🔹 Each Chainlink Node Operator will run an external adapter for each data source they have

@chainlink @ChainLinkGod @Crypto___Oracle 🔹 External adapters can be created by anyone in any programming language
🔹 External adapters can be deployed by anyone
🔹 Common use case for APIs is for niche datasets that are required at a specific moment in time (e.g. results of a sports event, weather conditions)

@chainlink @ChainLinkGod @Crypto___Oracle VRF

🔹 Chainlink VRF provides smart contracts the ability to access randomness
🔹Most apps use pseudo-randomness that is programmatically generated and unpredictable to humans
🔹 Still need a way to verify that the randomness is random

@chainlink @ChainLinkGod @Crypto___Oracle 🔹 Blockchain networks do not generate randomness
🔹 Often, a naive approach to randomness generation is used (cryptographic hash of a new block)
🔹 Introduces an attack vector as miners can discard a block with an unfavourable hash and retry until they get a favourable hash

@chainlink @ChainLinkGod @Crypto___Oracle Mechanism

🔹 Chainlink VRF generates on-chain randomness that can be verified
🔹 Every time randomness is generated from a Chainlink Oracle node, it generates randomness as well as a cryptographic proof proving that it was actually random

@chainlink @ChainLinkGod @Crypto___Oracle 🔹 A seed value is mixed with the Oracle Node's private keys and put through the Chainlink VRF function
🔹 The cryptographic proof proves that the inputs produce these outputs
🔹 The private key is hidden but the corresponding public key is available

@chainlink @ChainLinkGod @Crypto___Oracle 🔹 Hence, when the original seed value, the cryptographic proof, the randomness, and the public key is combined, people can verify that this seed value led to this piece of randomness and was signed by the correct private key

@chainlink @ChainLinkGod @Crypto___Oracle Use cases

🔹 Selecting winners of a lottery
🔹 Use for in-game dynamics 🎮
🔹 Generative art 🎨
🔹 Determine who gets to participate in an ICO
🔹 Ticketing for events 🎟️
🔹 Random sample of population for research study 🧑‍🔬
🔹 Selecting jurors 🧑‍⚖️

@chainlink @ChainLinkGod @Crypto___Oracle Keepers

🔹 Smart contracts are "asleep." They need to be woken up to execute their functions
🔹 Keepers are used to "poke" them/wake them up
🔹 Keepers do not deliver data. They are transaction automation services that ping a contract to call up a predefined function

@chainlink @ChainLinkGod @Crypto___Oracle 🔹 Keepers can never be malicious. Their role is just to ping and awaken the contract
🔹 However, they can be unreliable/failing to act when it is needed to
🔹 Not much info on Chainlink keepers yet. The docs indicate that Chainlink will be decentralizing Keeper networks

@chainlink @ChainLinkGod @Crypto___Oracle Blockchain Abstraction Layer For Enterprises

🔹 Chainlink is blockchain agnostic and API agnostic
🔹 Enterprises that want to become blockchain-enabled require a lot of development resources. In addition, they need to integrate with many blockchains as well

@chainlink @ChainLinkGod @Crypto___Oracle 🔹 Chainlink provides a single integration gateway, for any enterprise of any size
🔹 With this 1 integration, they get access to any and all blockchain networks that exist both today and into the future
🔹 Enterprises do not need to change their backend systems at all

@chainlink @ChainLinkGod @Crypto___Oracle Responding To Criticisms Of Chainlink

🔹 Narrative that people want even more decentralization
🔹 Chainlink is already decentralized on 3 layers (data source containing aggregated data, data aggregators, node operators)

@chainlink @ChainLinkGod @Crypto___Oracle 🔹 Narrative that Chainlink fails
🔹 Chainlink has a backup client running at a low frequency in the background
🔹 If the current client (OCR feeds) fails, it would failover to this backup client (Flux Monitor)
🔹 This system has been running for quite awhile already

@chainlink @ChainLinkGod @Crypto___Oracle Links:

Substack post: thereadingape.substack.com/p/chainlinkgod…

@chainlink @ChainLinkGod @Crypto___Oracle Links:

Podcast: open.spotify.com/episode/6aARpa…

Thanks to @ChainLinkGod and @Crypto___Oracle for this episode. We learned a lot from it!

@chainlink @ChainLinkGod @Crypto___Oracle Like our work?

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~ End Thread