Chainlink 2.0: Scratching The Surface
(A Summary of Chainlink's Whitepaper 2.0)
Written By: Isaiah "Zaindretti" Payton
May 23, 2021
(All Images used do not belong to me and are used to illustrate concepts covered in Chainlink Whitepaper 2.0)
With the release of Chainlink’s Whitepaper 2.0 a lot of attention has been directed to solutions for problems that have been plaguing the space since its inception. The whitepaper written back in April 2021 addresses the limitations of smart contracts with several solutions in mind including:
- On-chain and off-chain computations being composed securely.
- Removing complex underlying protocols and systemic boundaries for simple functionality.
- Warranting scalability by meeting demand for throughputs and latencies from decentralized systems.
- Providing privacy for data while staying transparent through the blockchain.
- Fair Sequencing Services.
- Lowering the need for trust for smart contracts and other oracle-dependent systems.
- Designing an incentive-based system for nodes based in Decentralized Oracle Networks (DONs moving forward) to promote good behavior for the overall health of the network.
The key takeaway from this article is to highlight the infrastructure being built for DONs to tackle current issues that are keeping cryptoeconomic systems from being fully functional and bring attention to the possibilities made apparent by these protocols and mechanisms. Illustrations from the Whitepaper 2.0 will be provided to help conceptualize the mechanisms presented.
Before getting into the meat of what a Hybrid Contract would consist of, we need to briefly cover the vessels that will be utilizing these current solutions in this space, which are what we call Decentralized Oracle Networks or DONs for short. A DON is not to be confused with a single Oracle, which many prematurely label Chainlink as, but as a network of said oracles that work together to ensure that the data and smart contracts being distributed and consumed meet a new standard of scalability, reliability, trust, confidentiality and transparency within the blockchain. These DONs are a key component for the enhancement and progression of smart contracts and their abilities through three resources widely used in computing systems: networking, storage, and computation. These committees of nodes or DONs work together to provide long-term relationships and/or fulfill certain jobs for clients persistently with integrity.
This brings us to the concept of hybrid smart contracts which can be viewed as a bridge between on-chain computation and executables, which are off-chain, running on a DON to provide off-chain services that on-chain code cannot execute efficiently. Off-chain functionality is inherently unachievable on-chain thus where Chainlink comes in to compose a bridge between the two chains. Data Feeds and VRFs are examples of services that are enabling DeFi, NFTs, and decentralized insurance dapps to exist and expand into new territory for seasoned and emerging markets. The second proposed solution of removing complex protocols compliments the implementation of hybrid smart contracts by enabling parties to connect their existing systems to any blockchain system without the need for expertise.
The removal of complex underlying protocols is valuable because it will allow any party within the network to utilize the resources provided by various DONs while simultaneously maintaining their original legacy system without major compromise. This will be achieved by removing the features of specific blockchains, which in turn will enable companies to connect existing systems to virtually any blockchain without the need for expertise of said blockchain computation. Moving forward this will break ground for the concept of Meta contracts which will exist on a decentralized metalayer that would seamlessly interoperate on-chain logic and off-chain computation alongside connectivity with numerous blockchains and existing off-chain services. As stated in the whitepaper 2.0, this is currently a conceptual model that needs to be kept in mind as we move forward with the solutions presented in the whitepaper. This brings us into the subject of scalability through DONs and its executables with the blockchain. In theory the implementation of hybrid smart contracts with this model of scale will improve blockchain scaling by focusing transaction and oracle-report processing off-chain instead of on-chain.
This feat of scaling is achieved by supporting Transaction Execution Framework (TEF). TEF overlooks efficient integration of DONs and Oracles with other well performing layer-2 systems such as Arbitrum’s rollups, to group transactions off-chain as stated above to abstract this level of work away from layer-1, enhancing the performance of that said system. A DON will be able to able to process transactions while simultaneously processing data from external systems, which forwards the results from the transactions’ output to the blockchain. While this is a huge improvement for the movement of data, we run into the issue of transparent confidentiality which many existing and emerging protocols will need to run their systems trustless and efficiently. Chainlink looks to achieve transparency alongside new confidentiality protections with three main approaches: Confidentiality-Preserving Adapters, Confidential Computation, and Support for Confidential Layer-2 Systems.
Confidentiality-Preserving Adapters (CPAs) will enable oracle nodes to request data from off-chain systems in ways that protect user privacy and data confidentiality. Two technologies are being prepped for deployment to achieve this named DECO and Town Crier as we speak and will play a huge role in the design for these said adapters for DONs moving forward. Confidential Computation (CoCom) is achieved by the inherent ability for DONs to conceal their computation from blockchains by using secure multi-party computation and/or trusted execution environments. CoCom is also possible because DON nodes compute over data which they do not have visibility of. Confidential Layer-2 Systems (CL2S) are possible through TEF because many use zero-knowledge proofs to provide various forms of transaction confidentiality. In short, a DON will be able to receive sensitive data through confidentiality-preserving adapters which push derived data to the DON through a function (i.e. secret-sharing). The executable on the DON then passes CoCom to derived data for a report and then passes the derived data to the blockchain ensuring confidentiality throughout the process. This leads us into Fair Sequencing Services (FSS) that tackles order-fairness for transactions on the blockchain.
FSS will be introduced by Chainlink to ensure that Hybrid SC designers promote fair ordering for their transactions to avoid front-running, back-running and other related attacks that currently plague user transactions and oracle report transmissions alike. In short front running can be described as a malicious act by a miner where they fluctuate prices to their liking by raising and lowering prices based on user transactions. Example: User puts in a buy transaction for Token-A, which in turn causes the price to rise. The miner can then put a buy transaction before User in the block, which would put more money in the miner’s pocket because they secured a position before User’s transaction affects Token-A’s price which rises. The user then pays more money than they wanted because the price rose due to the miner’s position. The miner can then put in a sell order which would negatively affect the price of Token-A, which in turn would have a negative effect on User’s buy order and thus perpetually causes User to lose money. This practice will be decreased due to FSS because it makes sure the transactions in a block are processed in the order that the transactions arrive in the block, therefore eliminating any chance for miners to front-run or back-run User’s transaction making for a healthier ecosystem that is fair for all participants. This will be done by a DON ordering the transactions and then forwarding them to the contract instead of transactions being circulated directly to a target smart contract. While this ensures a trustworthy process from DONs and their participants, there are some applications that would prefer a different trust model that prioritizes the main chain as a more trustworthy source than a DON. This leads us to the Trust Minimization model provided by Chainlink.
Trust Minimization is achieved by five main mechanisms that include: Data-source Authentication, DON minority reports, Guard Rails, Trust-minimized governance, and Decentralized entity authentication. These mechanisms will enable contracts on a main chain to bolster the security assurances provided by Chainlink DONs while also enforcing protections against possible corrupt data sources. Explanations of each mechanism are below:
- Data-source authentication: Tools that allow data providers to digitally sign their respective data and in turn strengthen the chain of custody between the source and the relying contract.
- DON minority reports: Alerts issued by a small subset of DON nodes that oversee majority of the malicious acts or wrongdoings in the DON.
- Guard Rails: Computer logic on main chain that finds devious conditions and stops contract execution protecting the process and execution of said contract.
- Trust-minimized governance: Implementation of aggregated release updates to enable community inspection, along with DeEmergency interventions for quick response to failures of the system.
- Decentralized entity authentication: Public Key Infrastructure (PKI) to identify and certify the trusted entities in the Chainlink network, keeping malicious players out of the network.
Moving forward this will play a major part in upkeep of the network to not only warrant the network running and maintaining efficiency, but to also ensure the inevitable integration of various systems into the Chainlink network, thus growing its size along with security and trust. To keep this system intact, Chainlink will offer Incentive-Based cryptoeconomic security to not only guarantee widespread adoption but also to incentivize the network to stay honest and trustworthy for all participants.
Ensuring that nodes have a financial incentive to behave in an honest manner is a major part in keeping this dream alive, and Chainlink has introduced three main innovations to achieve this. The first being its adversarial model that makes sure to monitor attacks that are usually overlooked in existing solutions. An example of this is prospective bribery which determines which nodes receive bribes on a conditional basis. Another example is Super-Linear Staking (yes, you read that correctly), which means for an adversary to be successful, they must have basically an astronomical amount of capital to achieve bad behavior. In essence the disincentivizes participants to engage in negative behavior within the network, but also incentivizes participants to behave correctly to be rewarded with a huge financial reward for being honest. Finally, Implicit-Incentive Framework (IIF) which is a model devised to contain incentives beyond common deposited staking funds. This will include nodes’ future fee opportunities to add to already rewarded good behavior within the network.
This is a lot to unpack but we haven’t even landed from the flight we are destined to take with Chainlink’s solutions presented in the Whitepaper 2.0. As implied above, Chainlink is leading the blockchain space as the standard for Decentralized Oracle Networks from startups to enterprises alike. Like the name of this blog, Chainlink can be akin to a DON of the crypto space, ensuring that the whole family eats well, and everyone gets a fair shot. The rest is up to us to ensure the family is protected and can grow exponentially. Chainlink is laying the foundation for the next revolution us humans haven’t seen since the inception of the financial system we are a part of right now. The thing is, Chainlink is agnostic and accepts all honest and trustworthy parties to the network and encourages those who disagree with certain perspectives to let the team know to help improve the world. Are you ready for 2.0?