A year-to-date chart of the LINK price.
The bitcoin price has roughly tripled since the start of the year, and most people have associated the price movements with the hype around Facebook’s upcoming Libra cryptocurrency — even though Libra is very different from Bitcoin.
While bitcoin has been on a tear this year, nearly all of the major altcoins have not been able to keep up with the world’s first, biggest, and most popular cryptocurrency. In fact, Bitcoin SV (BSV) and Chainlink (LINK) are the only two alternative tokens to be up against bitcoin over the past three months, according to Longhash.
BSV is mainly backed by a cult of personality around someone who has claimed to be Bitcoin creator Satoshi Nakamoto but never been able to prove it. In fact, many in the crypto space have referred to him as an outright fraud or scam artist.
On the other hand, LINK is the token associated with a project attempting to solve Ethereum’s oracle problem. LINK would not have been considered a major crypto asset at the beginning of the year, but the token is up 839% against the U.S. dollar so far, according to OpenMarketCap.
What is Chainlink?
The oracle problem is basically that smart-contracting platforms like Ethereum have no knowledge of real-world data. This effectively means that, for example, a simple smart contract where two Ethereum users bet some ether on the outcome of a sporting event will involve a trusted third party to decide who won the bet after the event is over.
Chainlink’s solution to the oracle problem involves the use of a decentralized network of oracles to lower the risks associated with placing trust in a single third party. After all, one of the key tenets of this technology is that trusted third parties are security holes and should be avoided at all costs.
While Chainlink uses mechanisms like collateral reputation to improve the reliability of oracles in its system, it may not solve the oracle problem in its entirety, as that is a question that can only be answered after the project has operated in the wild for an extended period of time.
The LINK Token
The LINK token is used in the Chainlink network for activities such as paying for data and putting up collateral. This economic model attempts to create the proper incentives for LINK’s value to rise as more entities come onto the network to provide oracle services.
While this model appears to make sense at first glance, it’s unclear if the additional LINK token is necessary. Much like how Uniswap eventually launched a decentralized exchange network on Ethereum without a native token, a similar situation could occur with Chainlink. There are already other solutions, such as discreet log contracts, which exist in the wild and aim to solve the oracle problem in a different way without the need for something like LINK.
While LINK has been the darling of the crypto asset market in 2019, it’s important to remember that these sorts of coins can fall just as fast as they rise, especially when they rise as fast as LINK has this year.
As one anecdote regarding the high level of speculation that likely exists in the LINK market, it should be pointed out that the subreddit about trading LINK has more subscribers than the project’s main subreddit. However, a Twitter user pointed out that the subreddit for LINK price speculation existed months before the main Chainlink subreddit was created, which means network effects are likely at play there as well.
Buying this coin today may not be too dissimilar from playing the slot machines at a casino. Anyone who decides to speculate on LINK should only do so with money they can afford to lose.
Update: This article was updated to reflect that the subreddit for LINK trading existed before the main Chainlink subreddit.