Chainlink’s network effect creates a safer and lower cost Oracle for everyone


Chainlink’s network effect creates a safer and lower cost Oracle for everyone

Original title: chainlink’s network effect creates more secure and lower cost oracles for everyone

Original author: smartcontent

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Chainlink's network effect creates a safer and lower cost Oracle for everyone

Chainlink network is a framework for building and running decentralized Oracle network. Its adoption rate has accelerated in the past few years, consolidating its position as the most widely used Oracle solution in the mainstream public chain environment and many vertical application scenarios of smart contracts. Hundreds of cases that have been launched or are being integrated show that chainlink network is actively guarding more than $5 billion of assets in the defi ecosystem through its rich price reference data feeding selection and a large number of Oracle value-added services beyond price feeding and data transmission services.

Chainlink’s growth is not only due to its first mover advantage as the pioneer of decentralized Oracle network and the first large-scale operation, but also due to the accumulation of its large-scale network effect. Each new gathering will bring more user fees to improve the security of Oracle and reduce the service cost of Oracle, And encourage the data providers under the chain to realize APIs on the blockchain through chainlink. This dual flywheel effect around Oracle network security and resource accessibility enables developers to have a safer and richer data environment for building increasingly high-level smart contracts to carry greater value on the chain, further generate more user costs, and even accelerate this flywheel effect.

Chainlink's network effect creates a safer and lower cost Oracle for everyone

The benign growth cycle of chainlink network drives more Oracle machines to demonstrate the principles of network security and data / API availability on the chain

In order to better understand the main impact of network effect on the technical adoption of a protocol, we will define what is network effect, take a look at the basic role of this effect in bitcoin and Ethereum, explain the benefits of chainlink network effect, and show how it can be realized in a completely decentralized and open source manner.

Explanation of network effect

Network effect, also known as Metcalf’s law, is a phenomenon that shows that the value of a service or application depends on the number of users. Whenever new users are added, the entire network becomes more valuable / useful to all current users and more attractive to potential new users.

An obvious case of the current network effect is the rise of social media. The reason why Facebook, twitter and Youtube are so widely used is that they provide an aggregation platform on which creators can share their content with a wide audience, and consumers have more content to choose from. Friends and family can use one platform at the same time, which makes the platform more intrinsic value to users and can provide users with the greatest unit value or utility. In contrast, if your family and friends are distributed in 50 different Facebook like applications, you need to do a lot of work to keep pace with everyone, which will eventually lead to smaller social networks, which is of little use to everyone.

Chainlink's network effect creates a safer and lower cost Oracle for everyone

Visualization of growing network effects(original text

Network effects in bitcoin and Ethereum

The network effect also exists in the leading cryptocurrency network. New cryptocurrency users usually prefer bitcoin because it has the largest user share in the world. Not only because it is the first cryptocurrency in existence, but also because bitcoin gathers the huge network effect of more than 100 million wallets all over the world. These wallets hold more than 340 billion US dollars of currency in circulation. Every new user / holder will increase people. Bitcoin is safe and reliableValue storageFurther enhance the value proposition for existing and future users, and enhance its network security by generating more mining costs.

Chainlink's network effect creates a safer and lower cost Oracle for everyone

Similarly, smart contract developers tend to choose Ethereum, not only because it is the first programmable smart contract platform, but also because it has more than 2 million deployed smart contracts, 32000 active users every day and more than $14 billion user funds are locked in the defi ecosystem. This network effect means that developers can develop on the basis of highly secure blockchains and existing smart contracts, rather than rebuilding core infrastructure and protocols from scratch.

We believe that Ethereum currently has the following advantages, whether:

  • Through eip1559 proposal, user fees will jointly support network security and reduce incentive issuance
  • Reuse and combination of the defi protocol to create more advanced applications
  • Projects with access to a large number of active users
  • Invest resources in developer tools to further simplify the development of smart contracts

It can be seen from the rise of bitcoin and Ethereum as the two blockchain networks with the largest adoption rate and occupying the mind of users so far, it is obvious that the network effect is the key to the success of decentralized technology.

Chainlink’s network effect

Chainlink has become the most widely used Oracle solution. On the one hand, it is the first decentralized Oracle network running on a large scale. On the other hand, it is also due to the wide use of its price reference data in the defi industry and the network effect caused by its adoption as a general Oracle solution by many blockchains, dapps and data / API providers.

Carefully observe the price reference data feeding mechanism of chainlink, which is a pre-established Oracle network that can provide a large amount of financial data. We can see that its network effect is based on the shared cost model. In this model, users do not need to start their own Oracle network and pay all the costs. Users who need the same reference data can share and jointly fund a Oracle network. This has been applied to the feeding price of defi applications, but it can also be extended to a wide range of data set requirements, such as proof of storage, verifiable random numbers and so on.

The core advantage of chainlink’s shared public interest network model is that each additional paying user will reduce the cost of each current and future user, and increase the network security budget by aggregating user fees。 Paying users can use these increased security budgets to fund the improvement of Oracle network, including:

  • Add additional Oracle nodes to further decentralize data transmission
  • Add additional data sources to further decentralize data sources
  • Upgrade to an advanced data source that provides higher quality data
  • Lower the deviation threshold of price feeding to provide more frequent updates
  • Compensate for more link nodes to create stronger encryption economic security
  • Pay more links to Oracle nodes for each job to encourage more reliable services
  • Give users rebates to further reduce costs and encourage use

Chainlink Oracle network can also be designed so that users pay fees in proportion to the value of the contract and / or the revenue generated by the contract, so as to further reduce the cost of new projects or new start-up agreements with less budget. In addition, through flexible governance contracts, users can collectively decide where and how to best allocate the funds collected through the user cost pool in each Oracle network.

Chainlink's network effect creates a safer and lower cost Oracle for everyone

ChainlinkEncryption economics securityAnd the shared public interest model

Chainlink’s shared public interest model produces a key value proposition beneficial to everyone: each paying user can access a highly secure decentralized Oracle network with high-quality data at a cost-effective price. This decentralized access with industrial security and high-quality data quality cannot be achieved by aggregating a pile of separated low-quality Oracle networks that can provide the same data set.

The reason is that it is not economically feasible for users to fund dozens of different Oracle protocols to access the same data set while maintaining the high standards that users want and require. The financial resources of users are too scattered, which will lead to the decline of the quality and reliability of each individual Oracle network. Therefore, an overall weak Oracle solution will be obtained to protect the financial security of users. This design not only leads to the creation of insecure Oracle network, but also requires users to carry out extensive social coordination, and will introduce many attack vectors, involving the simultaneous integration, maintenance and monitoring of many different Oracle implementations.Aggregating low-quality Oracle solutions will not produce high-quality Oracle solutions, because the sum is only the sum of its parts.

However, if users, large or small, pool their resources to fund the development and maintenance of a single decentralized Oracle network, they can equally access world-class Oracle infrastructure and high-quality data at an affordable price. The network effect created by this shared cost model has played a role in chainlink. It provides higher security for each application, reduces the cost of each end user, and provides a method to expand the Oracle network. It can guard more value and allow the open source community to collectively manage and maintain, And invest developer resources into shared infrastructure with long-term sustainability.

For example, the ETH / USD price is a high demand reference price for the Delphi application running on the Ethereum blockchain. In order to meet this demand, the smart contract can integrate chainlink’s existing, time tested and strictly tested eth / USD price information, which has been jointly funded by more than 26 defi projects on the main network. In addition to some link token subsidies used to start the Oracle network, the total cost aggregated from these users (as shown in the figure below) also enables users to obtain the most decentralized, accurate and secure feed price of eth / USD in the blockchain industry at a very affordable price.

Chainlink's network effect creates a safer and lower cost Oracle for everyone

Chainlink eth / USD price reference price

Unified, unlicensed decentralized Oracle network

The decentralized protocol should be refined as few as possible to provide the Oracle solution with the maximum value and the lowest cost, which will achieve the maximum network effect and become the standard infrastructure of smart contract economy. Chainlink’s network effect is not only several orders of magnitude larger than any other Oracle protocol, but also accelerates its growth much faster than its competitors. Similar to Andrew Kang’s assumption that a single platform is a liquidity black hole, chainlink is also becoming a black hole adopted by Oracle. It provides a wide range of projects with the opportunity to access the most secure and reliable Oracle in the industry, while the integration work and financial cost are the least.

Gathering the network effect of the whole industry on chainlink does not mean that it is centralized or will lead to a single point of failure. The existing chainlink Oracle network is not only decentralized, but also composed of multiple independent Oracle node operators, and the underlying architecture of chainlink network is unlicensed, universal and heterogeneous in design. Anyone can use chainlink protocol to build any type of Oracle network, and any number of Oracle networks can run simultaneously on chainlink network without any cross dependence.

Based on the wide adoption of the existing Oracle network and the wide design flexibility that developers can use, chainlink has produced dual network effects around two important implementations: the shared cost Oracle network supported by a large number of users and the fully customizable Oracle network based on the unique needs of the project. The complementary combination of standardization and flexibility makes it an ideal framework to support all Oracle requirements now and in the future.

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