chainlink economicsWhat is CHAINLINK Easy

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if you havent seen my video on smart contracts i strongly recommend watching it first to better understand the need and role of oracles and chain link as a very quick recap smart contracts are simply a piece of code that executes itself if certain conditions are met for example a smart contract can play the role of insurance where you pay a monthly premium and in the event your house burns down or something happens to it the smart contract will pay you for it you wont need to worry about any human error or even an insurance company the smart contract will always have the necessary funds to pay you and it will execute automatically without the need of a human but how does a piece of code know anything about the real world how will it know if your house burnt down this is where oracles come to the rescue you see blockchain cant recognize anything outside of its own code it simply stores data and transactions but we can write smart contracts that rely on real-world information like the temperature outside or even who won the presidential elections an oracle is simply a trusted third party that provides reliable data the first thought i had is who provides that reliable data we have so-called fact checkers and almost established a ministry of truth in the united states how do i know that my smart contract wont be manipulated by such authoritarian agencies more on that later but now lets take a look at an example of an oracle remember the farmer who lives in washington dc named joe brandon from the smart contracts video well lets imagine joe wants to buy crop insurance to protect his harvest from a drought he would have to pay a monthly premium that goes into a large pool of money and in the event of a drought joe would receive a payout to trigger the smart contract an oracle would need to be fed the data about the temperature of the location where joe farms and lets say if the temperature was over 95 degrees fahrenheit for 15 days in a row joe would receive the payment of course insurance is way more complicated than that but this is just an example of how oracles and smart contracts can create a decentralized trustless and more affordable insurance platform another example is creating a token that follows the price of u.s stocks allowing foreign investors to participate in the u.s stock market without needing a social security number or going through complicated tax laws because they would not be paying taxes at all with a mirror protocol you can use an oracle to create a synthetic token that tracks the real world stock price you can actually buy a token m google or m tesla where the prices of those tokens are linked to the google and tesla stock prices through chain link remember how we had doubts about the truthfulness of the information from an oracle after all blockchain is decentralized and we need oracles to be decentralized as well chainlink seems to solve that problem chainlink is an ethereum based network that uses a proof-of-stake algorithm it aims at creating a network of data providers that are incentivized by money to provide true and reliable data to the blockchain as you may have guessed those data providers are called oracles but how does the information get to the chain link network the answer are node operators who lock up their money and offer services of providing reliable data the reason their money is locked up is to incentivize them to provide reliable data because if we cant prove that a node operator provided false information their money will be taken away but if they provide truthful information they will earn money because people are willing to pay these node operators to provide the real world data of course in reality it gets a little more complicated than that so if you want to get more exposure to the technical side of things take a deep breath and lets dive in if you want a piece of information to be on the blockchain you first need to set up a requesting contract which chain link algorithm will register as an event after which a chain-link service level agreement contract or sla will be set up which is just a matching smart contract that allows getting data off of the blockchain the sla will create three subcontracts a reputation contract an order matching contract and an aggregating contract a reputation contract checks the tracking records of an oracle to make sure it uses oracles who provided truthful information in the past and thus eliminating the unreliable and accurate nodes the order matching contract sends the initial request contract to the nodes and chooses the amount and types of nodes necessary to handle a question finally the aggregating contract validates the data lets say in the example with the farmer 10 nodes say that the temperature was over 95 degrees fahrenheit for 15 days in a row and two nodes say that it was not the aggregating contract will repeat this process multiple times with different sources and remove the unreliable nodes to summarize you pay chain link to find the reliable nodes for you which is the reputation contract then chain link will try to find the answer order matching contract and chain link puts together the final answer which is the aggregating contract i hope this video improved your understanding of oracles and chain link feel free to subscribe to my youtube channel for more similar videos and ask questions in the comments section below 00:00 - Smart Contract Recap0:45 - Oracles and Insurance2:11 - Oracles and Stocks 2:45 - What is Chainlink 3:40 - Types of Chainlink Contracts explained Chainlink and Oracles Explained in Easy Terms with Examples. 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