How does Chainlink ($LINK ) work?

To facilitate communication between its users & external data sources. Chainlink divides its execution process into 3 distinct steps.

Oracle Selection

Chainlink users draft a service-level agreement (SLA) that specifies a set of desired data requirements. The software then uses the SLA to match the user with oracles that can provide the data. Once the parameters are set, the user submits the SLA and deposits their LINK cryptocurrency in an Order-Matching contract, which accepts bids from oracles.

Data Reporting

This is where the oracles connect with external sources & obtain the real-world data requested in the SLA. The data is then processed by the oracles & sent back to contracts running on the Chainlink blockchain.

Result Aggregation

The last step involves tallying the results of the data oracles collect & returning it to an Aggregation contract. The Aggregation contract takes the responses, assesses the validity of each & returns a weighted score, using the sum of all the data received to the user.

Architecture

The Chainlink blockchain is powered by 3 types of smart contracts

Aggregating Contracts

Collect data from oracles & match the most accurate results with the smart contract that needs them.

Order-Matching Contract

Matches a smart contract’s service level agreement (SLA) with the best bidding oracles

Reputation Contract

Verifies an oracle’s integrity by checking its track record. This includes factors such as the total number of completed requests, average response time & amount of LINK cryptocurrency the oracle has staked.

However, Chainlink also interacts with oracles that do not operate on its blockchain & that are independently responsible for collecting the real world data requested by the contracts

The nodes are made up of two components:

Chainlink Core

Chainlink Core is responsible for reading newly filed SLAs and routing assignments to the Chainlink Adapter

Chainlink Adapter

Acts as the bridge between the node & the external data. The adapter can read & process the data & write it to the blockchain