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The Full Scope Of Chainlink’s Bespoke Oracle Networks

On a recent episode of The Future of Money podcast, Chainlink co-founder Sergey Nazarov joined host Henri Arslanian to outline the growing role of Chainlink’s expanding oracle networks and how oracle networks’ high configurability continues to unlock new use cases in pursuit of a decentralized web3.

When people generally think of web3, they picture blockchains, but as Nazarov explained, blockchains are one piece of the two-part infrastructure powering hybrid smart contracts that constitute web3 applications.

He described this two-part infrastructure in web2 terms, denoting blockchains as an application’s core code and oracle networks as the services used by that core code.

While blockchains create transparent, immutable consensus about transactions, oracle networks are necessary to create consensus and guarantees regarding data outside of a blockchain.

For example, blockchains need oracle networks to access the world’s financial data to enable use cases like decentralized finance (DeFi) applications.

“Oracles package everything out in the world in a consensus-based format that is secure and reliable enough to control the trillions of dollars that are going to make their way into smart contracts,” Nazarov said. 

Data provision, off-chain computation, and cross-chain communications constitute three main categories of the now over 900 and counting Chainlink oracle networks. Each oracle network provides a distinct service that is optimized for a particular application. This means the Chainlink Network as a whole is highly scalable, and individual oracle networks are bespoke to secure protocols ranging from millions to trillions of dollars in TVL. 

The Chainlink Network is currently utilized by 15 leading blockchains; Nazarov imagines the number of blockchains using Chainlink will soon surpass 100. Oracle networks are configured with individual applications to achieve the optimal set of speed, data quality, and aggregation methodology in order to reach consensus about a particular piece of data.

Whereas applications using a single oracle are highly susceptible to flash crashes and manipulation, Nazarov explained how Chainlink oracle networks – with over 30 nodes and tens of data providers – retrieve data from hundreds of exchanges and aggregate it against publicly known and transparent methodology.

“When there’s a flash crash on one exchange, or when somebody tries to manipulate the price of an asset on another exchange, that manipulation or that flash crash does not make its way into the aggregation, and it leaves the DeFi protocols unaffected while certain web systems that rely on a single exchange are affected,” he said. 

This, he explained, is not only important to smart contracts, but also increasingly important to web applications. “They want to prove to their user base that they have no control over the configuration of the data or ability to manipulate data,” Nazarov said.

Watch Sergey Nazarov’s full conversation with Henri Arslanian on The Future of Money podcast.

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