How Chainlink Generates Definitive Truth About the Off-Chain World: Opening Up Multi-Trillion Dollar Markets For Smart Contracts

The following article is based on a recent presentation given by Chainlink Co-Founder Sergey Nazarov at Chainlink’s blockchain conference, SmartCon 0. He discusses how blockchains and smart contracts create definitive truth about asset ownership and transfer, and how Chainlink is actively extending this property of definitive truth to real-world data and events existing off-chain. By doing so, smart contracts greatly expand their functional capabilities, allowing them to disrupt multi-trillion dollar markets across a variety of industries and use cases.

Contractual Agreements Are Fundamental to Social Progress

When it comes to what drives our global economy, nothing is more foundational than a contractual agreement between independent parties. Contracts enable social coordination and collaboration on both a local and world-wide scale, from the extraction of raw materials and their transformation into products, to the vast global supply chain network and its supporting financial systems. Humanity’s ability to continually create more advanced contractual agreements is one of the core drivers of its social transformation from individual hunter gatherers to the increasingly interconnected and complex modern world of today.

How Blockchains Create Definitive Truth on Transactions, Ownership, and Contract State

Definitive truth is a quite simply truth that cannot be manipulated. Arguably the first form of technologically generated definitive truth was the launch of the Bitcoin blockchain in 2009. It initiated the start of an ever growing ledger of transactions managed and validated by an interconnected network of computers distributed across the world. For over ten years, the Bitcoin network has been the golden source of truth about the ownership of BTC (Bitcoin’s native asset), with every transfer validated and updated in the ledger by each node in the network. By using a decentralized network to achieve massive computational redundancy, the Bitcoin blockchain is able to maintain strong security guarantees of immutability and manipulation resistance to even the largest centralized entity.

How Chainlink Oracles Generates Definitive Truth About Real World Data and Events

Chainlink overcomes the oracle problem by providing users with a multitude of security techniques that can be mixed and matched to create definitive truth about the off-chain world. Most notably, these security features include decentralized computation, digital signatures, zero knowledge proofs, crypto-economic incentives/penalties, reputation systems, trusted execution environments, and more. Bringing definitive truth to the much broader and complex off-chain world expands the awareness of smart contracts, allowing them to obtain information from any external database/web server and stay up to date about everyday real-world events. This off-chain data can then be used as tamper-resistant inputs to trigger predefined business logic coded within a smart contract.

Chainlink Moving Smart Contracts Beyond DeFi

While DeFi is showing the demand for highly reliable and deterministic financial products, it is only the tip of the iceberg in terms of industries that oracle-enabled smart contracts will disrupt. While still in the early stage of market growth, where innovators and early adopters are driving adoption, definitive truth is a universal concept that can and will be extended far beyond the crypto space, making its way into all traditional markets.

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