Chainlink 2.0: Advancing the Functionalities of Decentralized Oracle Networks

Chainlink’s most recent update lays out a strategy for improving smart contract functionality and connecting them to off-chain data.


Chainlink has been focused on enhancing the capabilities of smart contracts by finding means to integrate them with external data since its start, with the ultimate goal of expanding smart contract use cases in the real world.

Chainlink 2.0, which was announced in 2021, aims to enhance the company’s initial product offerings by adding a collection of decentralized oracle networks (DONs) to provide off-chain processing, which might help Chainlink smart contracts become more efficient, cost-effective, and applicable.

Chainlink 2.0 introduces the concept of hybrid smart contracts, which are intended to help blockchain-based products and services reap the benefits of both on-chain and off-chain environments while streamlining the development and deployment of smart contracts for increasingly diverse and complex use cases — potentially ushering in the next generation of smart contracts.


Introduction to Chainlink 2.0

Chainlink is a decentralized oracle network (DON) that aims to improve the efficiency, reliability, and security of blockchain-based platforms and decentralized apps (dApps) that need external, off-chain data to feed their on-chain smart contracts.

Because smart contracts are often executed in a solely on-chain setting, they are praised for being performant, automated, and tamper-resistant.

Complex smart contract applications, on the other hand, are increasingly requiring external data. Oracles allow smart contracts to query, verify, and authenticate external data before relaying it to a blockchain-based smart contract.

Because most smart contracts are only as good as the data that feeds them, the historical challenge has been to ensure the quality of external data while maintaining trust, privacy, and security – a conundrum termed “the oracle problem.” Since its inception in 2017, Chainlink has made significant progress in addressing the oracle challenge, becoming one of the blockchain ecosystem’s most trusted initiatives in the process.

Some experts even suggest that Chainlink oracles have become the de facto industry standard, owing to Chainlink’s first-mover position and quick growth, which aims to keep the company’s technology up to date with ever-evolving smart contract use cases.

Chainlink reported over 600 partnerships, collaborations, and integrations with apps ranging from decentralized finance (DeFi) to gaming, data provision, insurance, real estate, and more as of July 2021.

Chainlink is the most extensively utilized decentralized oracle network, and many of the blockchain industry’s most recognized projects use it.

Hundreds of data suppliers have also used Chainlink’s technology to integrate and monetise their data. The company hopes to improve how smart contracts request and implement highly important data from outside sources, or oracles, by using Chainlink as a form of middleware.

This will assist to increase the correctness and dependability of such outside (i.e., off-chain) data.

The goal of these improvements is to enable smart contracts to achieve improved quality and quantity of capabilities across a wide range of sectors.

Chainlink 2.0 provides a long-term, multi-year strategy for the further development of Chainlink’s decentralized oracle networks and the platform’s capacity to further allow the fast expansion of smart contract use cases, as outlined in an April 2021 whitepaper.

The Chainlink 2.0 roadmap features a number of technological advances that will help smart contract applications run more smoothly. The heart of these developments is a network of DONs that work together to provide an off-chain computational layer capable of managing hybrid smart contracts.

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DONs in the Chainlink Oracle Ecosystem

Over the previous few years, Chainlink has established itself as a successful decentralized oracle network, including decentralized services such as:

Price Feeds: On-chain financial market data for a wide range of assets that is largely used by DeFi applications. For its role in supplying very accurate decentralized price data, Chainlink has been dubbed the “backbone of DeFi.”

Verifiable Random Functions (VRFs): Providing cryptographically verified randomness and provable rareness for a wide range of applications, including gaming dApps and non-fungible token minting (NFTs).

Proof of Reserve: Providing on-chain data feeds that allow smart contracts to audit tokenized assets like stablecoins on demand.

External Adaptors: Providing smart contract developers with development tools to connect to most off-chain data providers or application programming interfaces (APIs).

Chainlink is now attempting to generalize its oracle network into a plethora of DONs in order to accommodate a range of even more decentralized services for smart contracts created on any blockchain.

By permitting hybrid smart contracts that integrate the best features of both the on-chain and off-chain ecosystems, Chainlink claims that DONs are uniquely capable of providing advantages that blockchains alone cannot.

Chainlink aims to improve the design of DONs to accommodate a greater range of users and use cases for smart contracts by depending on blockchain technology for security while also reaping the high degree of connectedness, functionality, and scalability that many off-chain platforms offer.

DONs serve as a coordinating mechanism and backbone for hybrid smart contracts, which mix existing on-chain code with very valued, extremely versatile off-chain computations.

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Updated Chainlink Smart Contracts: On- and Off-Chain Hybrids

Chainlink’s concept for combining on-chain and off-chain resources into augmented smart contracts with increased versatility, scalability, confidentiality, and usefulness is known as hybrid smart contracts.

Chainlink DONs are designed to calculate oracle-provided data in an off-chain environment for higher throughput and reduced latency, while also assisting in the safe connectivity between on-chain and off-chain environments and supporting the confidential calculation of smart contracts and oracle data.

DONs and hybrid smart contracts go hand in hand under Chainlink 2.0’s concept, with hybrid smart contracts being able to interface with off-chain resources while maintaining the privacy and security of the basic blockchain.

Offloading a portion of a smart contract’s computational load onto an oracle network for off-chain processing is what hybrid smart contracts are all about.

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The Chainlink Node “Metalayer” and Off-Chain Computation

Whereas Chainlink 1.0 introduced the concept of decentralized oracle networks, Chainlink 2.0 aims to create a framework for a collection of interconnected DONs, each with its own set of nodes, variable consensus mechanisms, and the ability to perform more secure, confidential, and scalable off-chain computations to improve smart contract infrastructure.

Individual users could choose from a variety of interoperable DONs to find the ones that best fit their needs.

DON design is similar to Layer-2 technology, which links to a parent blockchain to process data indirectly (and hence more effective than when relying only on the parent blockchain), only periodically synchronizing back up with the main chain.

Similarly, Chainlink DONs will be anchored to parent blockchains in order to perform off-chain computations and sync data outputs and state changes as needed — with additional aspects to aid in ensuring correct reporting and resolving off-chain disputes, of course.

This architecture is still a work in progress as of mid-2021. However, this “metalayer,” as it has been dubbed, is simply a network of DONs that will supply the Chainlink ecosystem with more off-chain computing capabilities.

Finally, as compared to Chainlink 1.0’s architecture, the 2.0 metalayer is expected to boost throughput while lowering costs, resulting in more frequent updates for decentralized services such as price feeds and more cost-effective creation of whole new decentralized services.

Due to constraints in their inherent security models, Chainlink appears to believe that existing blockchains will not be able to meet the growing demand for complex smart contracts. Chainlink wants users to be able to decide on the composability of their smart contracts and mix and match different components thanks to a metalayer of DONs that can calculate data instead of just storing it.

Which aspects of smart contracts should be processed on-chain, and which parts should be handled off-chain utilizing DONs? The solution will be primarily determined by each implementation’s specific demands and requirements.

If security and transparency are the most critical factors, the majority of the smart contract’s processing will most likely continue to take place on-chain. If speed and cost are more essential, then possibly more calculations can be performed off-chain.

Chainlink Staking and Security

A new security design has been incorporated in the Chainlink 2.0 roadmap to better defend Chainlink’s growing network of DONs, and it features a staking process that aims to make manipulating a Chainlink node into delivering false data prohibitively expensive.

The revised Chainlink staking approach is known as “super-linear staking,” and it is built in such a way that breaching Chainlink’s network security would need an enormous number of resources — in principle, quadratically more resources than all DON nodes’ combined security deposits.

To put it another way, this Chainlink staking implementation might make the network considerably more secure than other staking systems.

Although this Chainlink staking mechanism is still in the early stages of development (as of late 2021), the value of having drastic, exponential security measures in place when the quality and reliability of oracle-provided data is critical to the optimal performance of Chainlink-powered smart contracts would be enormous.

Realizing Chainlink 2.0

Chainlink 2.0’s ultimate ambition is for the already well-established platform to become a pillar of the whole blockchain ecosystem. Some of the decentralized services that Chainlink has previously provided, such as VRF and pricing data feeds for DeFi, are set to be improved through the incorporation of DONs that are aimed to improve security, throughput, and cost-efficiency.

The Chainlink 2.0 roadmap envisions and outlines all-new decentralized services in addition to existing capabilities. Fair sequencing services (FSS), decentralized identity services, and other services are among them.

The Chainlink 2.0 update is well underway, despite the fact that several of these features are still in the early stages of development or testing. Chainlink is expected to gradually move closer to its 2.0 form through incremental implementation and parallel development, beginning in 2021 and continuing for several years.

If the project stays on track, it will continue to advance the creation of smart contract use cases, which will broaden the scope and depth of the blockchain ecosystem’s real-world application. Simplifying how smart contracts securely communicate with external data is a critical component of blockchain and smart contract technology’s continued widespread adoption.