Smart contracts are the superstar transaction agents of the blockchain world. They automate processes, such as transferring value between users according to agreed-upon conditions; they’re secure, trackable and irreversible. And they don’t require a lawyer or other third party to enforce the transaction.
But smart contracts still need to “know” what’s going on in the real world. Most of them need to access verification of external events, info they can’t find on the blockchain—such as market prices, IoT events, and shipping data. And they need a secure, reliable way to connect to this off-chain data. If you miss your flight, a travel insurance provider will need to check flight schedules with a trusted external source. Otherwise, how can an instantaneous payout be made?
In the blockchain arena, platforms which can verify external events by connecting to outside sources are called “oracles.” They’re coming to the fore as smart contracts and their uses proliferate. The big daddy of them all is Chainlink. It is, if you like, the oracle of oracles, because it draws on networks of decentralized, independent oracles for ultra-accurate data.
The company, which is based in the Cayman Islands, raised some $32 million in its initial coin offering in 2017, and it’s a startup that’s notoriously publicity shy. But Decrypt tracked down its CEO, Sergey Nazarov at the Ethereum Community Conference, in Paris last week, to find out what Chainlink was up to.
We learned that the company’s progress, on the technical and business fronts, is one area where the startup was anything but bashful. Chainlink has been busy inking partnerships—around 21 to date, according to Nazarov. The latest, with oracle service, Provable (the new name of Oraclize,) was announced on Wednesday.
Engineering and philosophy
Nazarov was one of the first to develop decentralized applications in 2014, building Cryptomail, the first blockchain-based messaging application, and then Secure Asset Exchange, one of the earliest successful decentralized exchanges.
He grew up in the US, in a household of engineers. The young Nazarov did engineering and project management before deciding to study philosophy at New York University. “Philosophy helps you evaluate what is a worthwhile course of thinking,” he said. “It lets you abstract away emotion. I think philosophy, generally speaking, prepares people for life.”
The two disciplines—engineering and philosophy—ended up being a perfect foundation for tackling the world of oracles.
Chainlink’s business
“Essentially, our goal is make good blockchain middleware,” says Nazarov. “It’s not the sexiest way to put it, but what we’re doing is connecting systems that need to be connected for value to exist.”
Chainlink is looking to make externally connected smart contracts as secure and reliable as standard token ones.
Chainlink itself is a decentralized platform, but unlike some, it can work with both decentralized and permissioned blockchains. Its partners are major enterprises, such as SWIFT, and decentralized platforms—the Web3 Foundation, which manages interoperability blockchain Polkadot; Zeppelin, a smart contract tools and services platform; Wanchain, a cross-chain smart contract platform and Open Law, which is developing smart-contract-based legal agreements, to name but a few.
Connecting blockchains to the real world is not so easy, however. Smart contracts are secure within themselves, says Nazarov, but, in order to securely connect them to an external source, everything connected to that source needs to be secure.
Two approaches to solving the oracle problem
One way to deal with verification of real-word events is via decentralization. Decentralized data is supposed to be tamper proof and accurate; Chainlink has multiple oracles verifying an input source. Open Law, for instance, uses the Chainlink oracle system to determine exchange rates between ether and US dollars.
Another approach, which the company is still working on, involves “trusted-execution environments.” Simply put, these are secure areas within processors where code and data are protected. Trusted execution, or TE, requires specialized hardware and, to this end, Chainlink has acquired a “trusted hardware system,” developed by Ari Juels, a computer science professor at Cornell University. It’s called Town Crier and is described as a “high-trust bridge” between the Ethereum blockchain and online data sources.
Town Crier contains a program that runs inside an isolated piece of hardware called a “secure enclave.” Its function is to protect the program from malicious attacks and keep the computation confidential when it answers data queries from smart contracts by retrieving answers from external websites.
“A lot of the time people think these two approaches are mutually exclusive, but they’re not,” says Nazarov. Indeed, the goal is to continue developing both the decentralized and TE facets of their technology and, ultimately, combine them into one truly secure product.
“Our development priorities are tied to what people want to consume,” he says. “Right now it’s more about decentralization, because trusted environments are an early technology. Trusted execution environments are a good feature for the future.”
Meritocracy
Lewis Harland, an analyst at crypto assets investment fund, ID Theory, thinks that Chainlink’s approaches are on the right track—and very much needed in crypto today. "Smart contracts have a big connectivity problem, where they effectively run in isolation of external real-world data and events,” he said. Harland believes that Chainlink’s goal of using specialized hardware that can allow for highly audited and highly secure code, “has the potential to scale smart contracts, which is wholly necessary for long-term viability for smart contract platforms.”
Chainlink is, essentially, creating building blocks for Web3 development. Today’s web developers are used to a Lego-like computing programming environment where modules of code can be easily combined and re-used, speeding up development time. “For smart contracts right now, this doesn’t exist,” says Nazarov. “So that’s why, right now, it takes months—literally months—to build a use case to connect to anything. It’s what’s holding the whole space back. When Web3 developers are able to build at the speed of current developers, you’ll start seeing a huge increase in speed and value, and people can iterate.”
He believes that finding a way to develop reliable, complex contracts will usher in an explosion of innovation, similar to what occurred when e-commerce took off on today’s web platforms. The alternative is a Web3 that doesn’t live up to its initial potential. “Tokens are great,” he says. “but there’s a much bigger opportunity for the whole space.”
He says the Chainlink link team is working night and day to realize this vision. So don’t be too surprised if Chainlink elects to stay under the radar until they do.