Why is chainlink undervalued ? Investor point of view!

Why is chainlink undervalued ? Investor point of view!

By LinkBoy | LinkBoy | 4 May 2020

Before I explain why chainlink is undervalued, let me tell few things.

1. If you are an investor in crypto-market, first thing you have to consider is the token's use case.
2. Project can be great, but the value of the token depends on its role.
3. Demand and Supply is the first factor to determine a value of a product. More the demand and lesser the supply, will eventually increase the price, no matter what product it is.

Okay, now lets talk few things about chainlink, who they are and what is their purpose in the blockchain world. If you guys are not sure what is blockchain and smart contracts, I have shared a 5 mins clip from youtube. Best simplified explanation. Check it out before you proceed.

Lets dive into the topic now!


Chainlink is more of a framework and a protocol for connecting two different world. Which is blockchain and real-world data. Any data that resides in blockchain will not be able to communicate with external system. You need a middleman to pull data from external system via API call, aggregate it, pass it to the blockchain infra and vice versa.

Chainlink is now they key for smart contracts to be executed! Smart contracts are digital contracts that provides the mechanism to be executed according to pre-determined conditions/parameters.

To be truly useful, smart contracts require multiple data inputs, as well as multiple outputs to interact with the outside systems.

Smart contracts may be connected to data inputs through a single node. However, it makes the whole smart contract as reliable as the node. That means that failure in one single process will affect the whole system. This is a centralized approach different to blockchain ideas.

Similar way to chainlink's connectivity, lets see what Sergey told once upon a time in his twitter account,ย 


So you all may be wondering, what is the whole purpose of this LINK token now.


Link is ERC-677 token, which has all ERC-20 tokens functionality + allows token transfers to contain a data payload. There will be multiple node operators worldwide, who will act as the middleman to feed data for the smart contracts. We have 3 parties now,

1. Customer's Smart Contracts - Distributed into blockchain
2. Data Provider - Blockchain and External Systems
3. Node operators - Man in the middle between smart contracts and data provider. Who does the job of feeding in data.

LINK is now used for three purpose:
1. To pay the node operators for their job. (nobody is going to do any job for free, you need to incentivize them in some way).ย 
2. It will also be used as a collateral before a node operator can pick up a smart contract and start working on it.

So in order for a node operator to work on a smart contract worth of 1 million dollars, node operators have to deposit 1 million worth of LINK as a penalty fee in case the node doesnโ€™t fulfill the request.

Here comes the demand and supply. More smart contract adoptions worldwide, more LINK tokens will be used to incentivize node operators and more LINK will be locked as a collateral for pending smart contracts.ย 

I had this doubt for a long time, which I clarified with chainlink community in Telegram. What happens if the LINK value drops by 50% once it has been locked for a particular smart contract. How does it fulfil the worth of the smart contract in case false data is provided. Below is the answer I get from the community member,

An example of the service agreements logic that a contract requester could customize in order to solve that problem would look like this:

- In order to serve me data and be elligible to the payment I offer, I want node operators to have 1 mill USD worth of LINK staked.
- To protect me against market volatility, apart from the data I requested (weather in Barcelona airport for example), my node will query the LINK / USD price reference contract (updated every minute), so if the requirements of collateralization are not met, I don't want them to answer my request.

One of the interesting chainlink project which really pulled my intention recent time is,

Chainlink and Spotify - Automating payments to artists based on song plays, bringing artist information on-chain as reputation, automating advertising deals, enabling any smart contractual agreement involving Spotify data.


So far, the above is some little knowledge I have shared in such way, all can understand. If you want to understand deep about the tokenomics and their use cases, I have shared few useful hyperlinks below. Check it out.

1. Chainlink tokenomics by Max Sarafin

2. Top 5 reasons why you should invest in LINK by Crypto Oracle

3. Chainlink Review

If you guys want to track chainlink's ecosystem and who they are working with, head to below portal,

Chainlink Ecosystem

Now, its all about patience and see how smart contracts adoptions takes place in the next few years! Cheers!

Let me know if I have missed out anything, I will be happy to hear all your comments!

Thanks Guys, see you all soon in next article!


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