Blockchain oracles basically forward off-chain data to the blockchains. Transmitting data is only a small step. Oracles are designed to perform multiple functionalities. With the development of various smart contracts, new use cases of blockchain oracles are being explored. Oracles are being envisioned as a computational interface between off-chain and on-chain solutions. New functionalities, interoperability and trust model to the smart contracts can be brought by the oracles. The transformation may not be easy but hybrid smart contracts is a hot research topic nowadays. These hybrid smart contracts can fuse the unique capability of off-chain oracles with blockchain to explore new possibilities with on-chain solutions.
Chainlink, a decentralized blockchain oracles project, was founded by Sergey Nazarov in 2017. The project raised $32 million through a successful ICO. By 2020, Chainlink entered the top 10 cryptocurrency club as per market capitalization. Many Chainlink inspired projects also started to compete with Chainlink but Chainlink oracles maintained their popularity among various DeFi or decentralized finance projects. Chainlink price feeds provide on-chain financial market data for numerous assets to secure billions of dollars for leading DeFi DAPPs like Aave, Synthetix etc. Very recently, Chainlink has released their Whitepaper version 2.0. The revised whitepaper draws an evolution path of Chainlink beyond its original whitepaper and this is really interesting.
Chainlink 2.0 is based on the plan of Decentralized Oracle Network or DONs. The term ‘oracle network’ was coined in the original whitepaper of Chainlink. The project team says: “In this view, a DON is a network maintained by a committee of Chainlink nodes. Rooted in a consensus protocol, it supports any of an unlimited range of oracle functions chosen for deployment by the committee. A DON thus acts as a blockchain abstraction layer, providing interfaces to off-chain resources for both smart contracts and other systems.” The goal of DON is to provide secure and flexible hybrid smart contracts. The committees of DON don’t change the decentralized nature of Chainlink. DONs provide the foundation stone of a permissionless framework and the nodes can work together to implement permissioned or permissionless custom oracle networks.
Image Source - Chainlink DONs provide access to any off-chain data source and works with multiple blockchains
DON framework can be compared with software APIs. DON will be anchored to the blockchains and operate with high scalability of off-chain solutions and thus support a different kind of use cases which are difficult to attain due to technological barriers. DONs can run with different configurations parallelly and different DAPPs can select the consensus model according to their requirements. Various layer 2 solutions are being built upon the main blockchains nowadays. These layer 2 chains are designed to offer more scalability. DONs can easily be connected with these layer 2 chains and provide further scalability.
The beauty of a blockchain is its transparency but for the same reason, the data providers are not interested in feeding smart contracts with proprietary data as the relayed data remains visible on-chain. DON framework will provide confidentiality protection without interfering with the transparency of the blockchain. Confidentiality-preserving adapters of DON will provide two technologies to enable oracle nodes to retrieve data from off-chain systems while protecting user privacy and data confidentiality. DONs will be able to provide confidential computation also. Their whitepaper says: “We believe that powerful tools for handling confidential data will open up a whole range of applications. Among these are private decentralized (and centralized) finance, decentralized identity, credit-based on-chain lending, and more efficient and user-friendly know-your-customer and accreditation protocols.”
The Chainlink staking process is also going to be renovated. Staking in a blockchain prevents attacks on consensus but in Chainlink, staking ensures timely delivery of correct oracle reports. An oracle network must be able to prevent bribery attacks to a smart contract holding high-value assets. Any kind of bribery attack will be resisted with three innovations - a powerful adversarial model, super-linear staking impact and Implicit-Incentive Framework.
Chainlink 2.0 vision will be implemented phase by phase so that new oracle services can be properly analysed and tested by the developers. There is no doubt that Chainlink wants to bring the next generation smart contract revolution. DONs within the Chainlink Network are aiming to become the full-stack solutions for the creation of hybrid smart contracts which will connect off-chain solutions with an on-chain mechanism with ease and provide a blockchain agnostic gateway to facilitate interoperable decentralized finance. Blockchain scalability is definitely not an easy game but mass adoption of cryptocurrency can’t be achieved without that. Chainlink’s long term plan is really ambitious and it has the potential to bring extreme composability.
Note: This post was first published here for Cryptowriter in association with voice.com.