Chain Link Half Product Half Hype

Hey Jesslink

Chainlink has been making waves in the crypto market recently hitting number 5 in total market cap on @coingecko recently; they've got quite the cult following too. Perhaps not as aggressive as XRP and TRON bag holders, but never the less evangelical in the shilling of their project.

The coin has surged to a high of 19.83 from its starting price of $0.14 around two years ago, which is an insane gain for any cryptocurrency project and why early bag hodlers believe in its potential so fervently.

We all want to be right in our investments, but this is where we being to overlook certain shortcomings and not consider our blind spots. I own a bit of link which I bought months ago and have made a profit on that trade, but it was more out of curiosity and anything else.

What is chain link?

Chainlink is an ERC- 667 token which raised 32 million dollars in its ICO round. It lives on the Ethereum mainchain with its primary feature being pulling in external data through its oracle services and allowing smart contracts to use external data to execute certain parameters.

Enough about the jargon, what does the damn thing do or fix? Blockchains are great at storing data and reading and writing from a database, other than that they're pretty stupid and can't do anything if the data is not on-chain.

How does chain link work?

So let's say you made a bet on Liverpool winning the Premier League at the beginning of the season, how would a smart contract know to pay you out? Who is it going to ask? Where will it get the data?

Now that's what chain link wants to solve. By allowing users to create oracles where they source data and smart contracts can tap into that data for a fee.

So in our example above, the smart contract would ping the oracles, to see who won the premier league. Depending on how many oracles provide this data, they would then cross-reference to see if there is consensus.

The contract pays the oracles for supplying the data and then pays the winner of the bet, and everyone is happy.

Information marketplace

Depending on the type of data needed this is where I think it will make or break the system, having weather data moved into smart contracts via chainlink may be profitable at first, but as more nodes/oracles provide it, it reduces the cost.

If however, they have nodes providing data that cannot be easily sourced and replicated, they may be able to offer a strategic advantage to the network.

Not the only game in town

Remember, chain link is not the only service trying to provide an oracle system, there are chains like BAND and even smart contracts like Snythetix that use their own oracle service, so they are by no means going to have the entire market to themselves.

High values kill utility

Like any utility token, the higher the price goes, the costlier it becomes to enter the system and tap into data providers which means in a market-based economy. There is always a drive to deflation of information, oracles will want to compete to provide data, keep data honest and get paid for providing data.

In a market where users compete to provide the same data sources, you'll see those markets deflate to a point where it's margins are so tiny and that means less spending on chain link to source the data.

This to me, is the reason why I think chain link is overvalued and has a specific ceiling it will never break out of if we only look at fundamentals.

Once they finally have to launch a working ecosystem, you'll see a steady decline in the price of the token until it finds its equilibrium. I think while the hype cycle is going and they still don't have to deliver anything worth using their token can inflate to the moon.

This is why I see myself dumping my chain link after this bull run and see no reason to buy in again.

Ready to be told I am wrong

I think its a cool concept and very much needed in the space I just don't see this as a sound money coin. It's a utility token that has yet to find its price based on the value of its network of nodes.

Naturally, I don't know every damn thing about chain link and I'm pretty sure bag holders will tell me I am wrong and this is the great thing since sliced Bitcoin into Satoshis but then let me be wrong. The market will decide if its value or not in time, by selecting who provides the best service in this niche.