On Tuesday, popular trading app Robinhood added Chainlink (LINK 0.14%) to the growing number of cryptocurrencies on the platform. The company last expanded its crypto listings in April, when it added support for Compound, Polygon, Solana, and Shiba Inu. The move falls in line with recent comments from co-founder and CEO Vlad Tenev, who said Robinhood aims to become the "most trusted and easiest-to-use crypto platform."
Following the news, Chainlink's price popped as much as 8%, though it has still lost 88% of its value since peaking in May 2021. Is it time to buy?
Let's dive in.
What is Chainlink?
Smart contracts are self-executing computer programs built on a blockchain. They define and enforce the rules of decentralized finance (DeFi) services, thereby eliminating the need for intermediaries like banks. Unfortunately, smart contracts have limited utility because blockchains cannot interact with real-world systems.
For instance, a smart contract could theoretically facilitate sports betting by automatically transferring money to the winning gambler's account. But how would the smart contract know which team had won the game? The answer is Chainlink, a decentralized network of oracles. That term might sound like it came from the The Matrix, but the word "oracle" simply refers to a system that can move external data onto a blockchain, or a system that can move blockchain data to an external system.
Chainlink is powered by the LINK coin. To ensure honesty, node operators (i.e., the people running the Chainlink hardware and software) must stake LINK in order to participate, and they are paid in LINK for completing jobs. Specifically, when a smart contract requests real-world data, node operators bid on the job, and the Chainlink protocol selects multiple oracles to fetch the information. By reconciling data from multiple oracles, Chainlink can ensure an accurate result without compromising the decentralized nature of the blockchain.
A critical part of the crypto economy
Chainlink can feed crypto pricing data to lending protocols, making it possible to value each borrower's debt and collateral so that liquidations can be initiated when necessary. More broadly, Chainlink oracles can provide pricing data for any real-world asset -- from commodities to stocks -- allowing derivatives of those assets to be transacted on a blockchain.
Similarly, Chainlink can improve bond market efficiency by aggregating interest rate data from banks and debt scores from Standard & Poor's. Oracles can then relay that information to the SWIFT network to trigger interest payments.
Finally, Chainlink has developed a verifiable randomness function (VRF), which can produce random numbers in a secure and trustworthy manner. Developers can use Chainlink's VRF to inject random outcomes into gaming and gambling applications.
Chainlink is worth buying
Chainlink is the most popular decentralized oracle network by a wide margin. It features far more integrations than any rival, and Chainlink currently secures over $15 billion in DeFi investments, more than every other oracle network combined.
That makes the investment thesis crystal clear: As smart contract technology continues to evolve, demand for Chainlink oracles should increase. In turn, because Chainlink oracles are paid in LINK, demand for the cryptocurrency should rise as well, pushing its price higher.
As a caveat, with Chainlink now live on Robinhood, the cryptocurrency is accessible to more investors. That may translate into temporary price appreciation, but that event alone is not a good investment thesis. If you do buy this cryptocurrency, do so knowing it could be a bumpy ride.