Chainlink is building a new oracle network that could provide a solution to scalability and front-running issues, among other challenges, according to experts.
Chainlink 2.0, as the new network will be called, will create “decentralized oracle networks” (DONs), and these second-layer networks will operate off-chain.
This means that almost all the data related to the smart contract is stored and programmed off-chain, before an oracle makes an input on the blockchain to trigger a smart contract’s outcome.
Chainlink co-founder Sergey Nazarov has compared these so-called DONs to the application programming interfaces (APIs) that developers use for everyday computer functions:
“Our work with the top DeFi protocols has clearly shown us that in order to create the next generation of smart contracts developers need an easily accessible, provably secure and scalable set of decentralized services surrounding their smart contract code with key additional functionality,” Nazarov said in a recent interview.
In the Bitcoin ecosystem, so-called discreet log contracts (DLCs) require off-chain oracle services similar to those described above.
What Exactly Are Oracles?
An oracle is something that sends data from the outside world, such as the daily temperature for instance, to a blockchain such as Ethereum or another network.
A smart contract on the blockchain can subsequently use the data, for example to make a decision about whether to dispense money and to whom, or to execute another type of contract.