Chainlink gets world’s first hybrid blockchain oracle integration
You'll know blockchain adoption is en route when oracles themselves become disruptive businesses.
Chainlink and Kadena have collaborated to create what they describe as the world's first hybrid public/private blockchain oracle integration. Kadena is bringing the hybrid chain, and Chainlink is bringing the oracles.
Hybrid blockchains are essentially a type of network that combines public and permissioned blockchain sections, creating a much more flexible and enterprise-friendly blockchain than you get from a purely public or a purely private chain by itself.
Basically, the permissioned blockchain side provides the necessities that a large organisation needs before it's happy to get serious with blockchain, while the public side contains the essential blockchain goodness such as elements of trustlessness. Meanwhile, data feeds of the kind Chainlink provides are vital to the safe functioning of smart contracts.
So, between price oracles and hybrid blockchain you have two important building blocks coming together to facilitate more institutional involvement in DeFi. This helps lay the groundwork for things like flash loans from non-crypto financial institutions or the ever-elusive Bitcoin ETF.
"We’re excited to augment the value created through Kadena’s unique hybrid blockchain by bringing secure and reliable data feeds on-chain via Chainlink decentralised oracle networks. With this access to high-quality credential API data via Chainlink oracles, the Kadena ecosystem can begin developing next-generation smart contracts that depend on real-world data," said Chainlink co-founder Sergey Nazarov.
While the addition of Chainlink oracles helps augment the value of the Kadena ecosystem, it's also well worth considering how a high-scalability underlying blockchain can help accentuate the performance of Chainlink oracles.
The oracle problem... to me it's more like an opportunity than a problem."
Kadena's public blockchain "Chainweb" system, in the tightest of nutshells, works by letting proof of work miners simultaneously work hundreds of separate blockchains, all of which remain at the same block height, and allow seamless token swapping between them. So if one chain gets congested, the load seamlessly balances to a new, equally-secure chain in the system. It's theoretically an infinitely scalable public blockchain.
This degree of scalability helps get price oracles ready for serious use, by helping ensure that they don't get bogged down into uselessness whenever the chain gets congested.
A huge part of Chainlink's purpose is to ensure that blockchain data is reliable enough to automate smart contracts with, and a risk of data getting waylaid by network congestion undermines that goal.
This also ties into gas costs, and how unpredictable or high gas costs can limit the quality of data.
"Ethereum presents major challenges to data provision and monetisation due to the sheer cost of compute and storage in the form of 'gas', that is a fee on each transaction. Storage is particularly expensive, which puts huge constraints on data quality and accuracy as providers are forced to 'down-sample' their data to avoid cost," explains Kadena co-founder Stuart Popejoy. "This is only made worse by Ethereum’s inability to scale, as gas prices spike in periods of congestion, resulting in unacceptable cost risk at the very moment accuracy might be demanded (i.e. high trading volume)."
Here it's important to emphasise the difference between "highly-scalable" and "infinitely-scalable" in terms of predictability. When an organisation wants to perform automated trades based on data from oracles, it's essential that the data is completely accurate and up to date. Even a small risk of unpredictable performance may be a deal-breaker.
"Without this the data is simply not worth the money, as even a minor spike in utilisation can result in huge delays, which in market data, makes data worthless," Popejoy said.
"In a scalable system, we can see operations like Bloomberg and Reuters bringing industrial-grade market data to blockchain. Indeed, it would revolutionise these providers as they could be paid per-quote, as opposed to blanket subscription agreements, as only in a crypto-currency system can payment be truly automated, reducing costs and increasing efficiency."
"When Sergey and I met to talk through the integration between Chainlink and Kadena, we were both immediately excited about what we can accomplish together," Popejoy said. "We're enabling high-quality financial market data in a way previously unseen on crypto platforms."
One common way of viewing blockchain oracles is as a type of service that's necessary for the operation of smart contracts.
But another way is as an existing industry that can itself be disrupted by blockchain, as the market data "oracles" of today such as Reuters and Bloomberg start finding both competition and opportunity in blockchain.
With data provision being both a disrupt-able business and a stepping stone to blockchain adoption, it's possible that that's where blockchain's impacts will be felt first.
"Oracle is one of those terms that it's taken me a little while to get used to. Just because when it comes to being able to access data, especially when you're talking about trading systems which is what my background is in, it's all about things like marketing. It's all about Bloomberg and Reuters and other companies charging you for data, and making a killing off it, but in decidedly old school ways," Popejoy said. "Like you pay a monthly fee, and they run a report and they decide how much you use and how much to charge you."
"Taking that model that already exists and moving it onto a blockchain offers a lot of efficiency and more granular [control], you know, on-demand billing and all this kind of stuff."
"You can have smart contracts running the whole thing. So in that sense, the concept of oracles is as old as APIs in general. The idea that you'd hit up an API for anything is something that's been big for web technology – mobile technology – for a long time now," Popejoy said. "But blockchain, of course, public blockchains in particular, have this so-called oracle problem."
"To me, it's more like an opportunity than a problem."
The oracle problem is the idea that a smart contract is only as good as its data source, but that data in a completely open, decentralised network isn't necessarily reliable. The oracle opportunity is where names like Chainlink step in to solve that problem by using a valuable token to let participants get rewarded for providing good data.
"How do you assure anything in a blockchain? You put some crypto behind it... you put a signature behind it, maybe you put a token behind it. You make sure there's some kind of governance token to make sure all the players are behaving so that the data quality is assured."
"And that's exactly what Chainlink has done," Popejoy said. "And they've done it in an open fashion, or they've done it in, I should say, an extensible fashion, in that they have a technology solution that isn't just about like market data."
"We've also worked with insurance companies for things like crop data, which those oracles would be feeding from IoT devices on tractors or on weather stations or things like that. The Chainlink solution can handle all of these things."
"These are the first steps to get towards a truly modern, or a mature, data ecosystem on blockchain so we're very excited about that. Chainlink's really been doing a great job on this. So the partnership is very exciting to us, and they're very excited about having a scalable platform, having richer data and not running into these problems that they've been bitten by."
Disclosure: The author holds BNB, BTC at the time of writing.