The Evolution of Smart Contracts and Cryptoeconomic Security

“The Evolution of Smart Contracts and Cryptoeconomic Security” discusses how smart contracts are improving, their growing use of oracles and new data sources, as well as the cryptoeconomic security that externally connected smart contracts will come to rely on.

Table of Contents

Section 1: What is a Contract and What is its purpose?

3:35 – Commercial agreements upon social contracts

5:27 – A brief history of Commercial Contracts

7:21 – Increasing economic production through the ability to create contracts

9:03 – Technology enforced contracts leading to smart contracts of the present 

11:28 – What digital agreements seek to achieve in a future of automation

12:50 – Asymmetric control of centralized contracts on the web/Internet 

14:33 – Smart contracts and blockchains automating digital agreements and social contracts

16:22 – A parallel legal system for emerging market growth in Insurance, risk and economic destiny

17:45 – Smart contracts changing the way of life for billions of people and generations to come

Section 2: The Oracle problem for smart contracts

19:10 – Decentralized Oracles and Smart Contracts and tamper-proof digital agreements

21:00 – Delivering external real-world events to smart contracts

28:00 – Chainlink’s approach to reliable and secure decentralized oracles for Web3

32:55 – Why decentralized oracles decrease the risk for users and smart contract developers

34:40 – Binding service agreements for securing data quality in decentralized oracle networks 

Section 3: On-chain Service Agreements and Cryptoeconomic incentives of staking

37:45 – Providing guarantees of reliable high-quality data to smart contracts

39:55 – Cryptoeconomic security from staking

40:53 – Implicit staking in decentralized blockchain network protocols

42:27 – Explicit staking of generating blocks in decentralized blockchain network protocols 

44:44 – Staking in Chainlink’s decentralized oracle network for the end-to-end security of a contract

47:30 – User fees in Chainlink’s decentralized oracle network for reliable high-quality data delivery

48:50 – Governance structures in a decentralized oracle network

53:05 – Smart Contracts as the dominant form of digital agreement 

54:04 – Accelerating the creation of various smart contracts through the Chainlink Grants Program

Blockchain-based smart contracts are the next generation of digital agreements, providing deterministic guarantees on the execution of the contract according to its terms. However, smart contracts require a secure and reliable connection to external data existing outside the blockchain, commonly known as the “oracle problem”.

Chainlink offers multiple features to help developers overcome the oracle problem, including decentralization, provably secure nodes, high-quality data, crypto-economic security, defense-in-depth strategies, connection to numerous blockchain environments, and a large open-source development community. These features have allowed products from decentralized finance (DeFi) to enterprise-level solutions to seamlessly integrate external data into their smart contracts.

One of the most important elements of any blockchain oracle network is the use of high-quality data. To give users stronger guarantees about the quality of data, Chainlink applies binding Service Agreements between the requesting smart contract application and the node operator(s), which are cryptographically signed by both parties. The Service Agreement outlines the exact terms of service that the node operators need to provide and the penalties for not upholding the terms defined. 

Sergey expands on the crypto-economic security backing service agreements by discussing implicit and explicit staking. Implicit staking refers to the idea that participants in the network will act in its best interests to uphold the value of the underlying asset, while explicit staking refers to node operators depositing a pre-determined stake to back their performance of the agreement, which can be slashed for not upholding the terms.

The Chainlink Grant Program is also introduced as a way to accelerate the development and adoption of smart contracts via a more robust set of data and open-source tools available on the Chainlink Network. This will accelerate the development cycle, increase access to quality data, further expand API services, and provide additional developer tools to make it easier to build and monitor Chainlink oracle networks. 



– Hi everyone.

So today we’re gonna be talking

about the Importance of Smart Contracts,

how they affect all of us

and how they can change

the way society will properly function.

I think the first point

we need to get on the same page about is,

what is a contract?

Contract is a way for people

to come to agreement

that they’ll actually follow through on.

So contracts throughout history

have been how people formalize

and memorialize their commitments to each other,

to collaborate on something.

And everything you see in front of you

is largely a result of collaboration

other than the natural setting of trees

and rocks and rivers and oceans

and things like that.

So human collaboration is underpinned by contracts

because contracts give the reliability

that humans need to actually collaborate.

If we couldn’t have contracts for whatever reason,

it’s not clear to me

that we’d be able to engage

in all the high cost collaborations

that create all the things you see

in front of you,

the chair, the desk, the computer,

all of these are the results

of hundreds of contracts.

Contracts really come into life

through something called The Social Contract.

Here, you see the signing of something

called the Mayflower Compact,

which is a social contract

between all the initial settlers

of the new world.

So the Americas,

when the America’s got settled,

at least the Northern American portion,

you had the pilgrims,

which came over on the Mayflower

and a few other ships,

and they had the ability

for their own preservation

to create an agreement

about how they would preserve each other,

how they would preserve their society

and at a basic level,

how their society would function.

And this is very, very important

because it seems like both logic

and science agree with

the extreme necessity of this.

Logic, and in this case, philosophy

defines it as where no law,

the life of man is solitary,

poor, nasty, brutish, and short,

and like many things in philosophy,

especially analytical philosophy,

you start to see claims,

but here with this claim,

we see the science proving it out through

something called the Preston Curve,

which shows us the rate

at which people live and die.

So the time that people

have available to them for existence,

these conscious existence in this form

on the basis of how much resources

a society gives them per person.

And what we see is that societies

where people can’t seem to come to agreement

or societies that can’t function

to provide a certain level

of resources to people

have extremely low life expectancy,

40 and lower.

Pre- historic man,

because he could inform the type of collaborations

and associations that we can form with each other,

had a life expectancy of something like 30 years.

And this is something that

it’s pretty much accepted as necessary

for our society to function properly.

The existence of a contract

called The Social Contract,

which takes us out of a more scarier

form of existence called The State of Nature,

which I don’t have enough time to go into,

but essentially is the place

where life expectancy doesn’t take people

past their forties or fifties.

And this is a very significant point

because the very basis of us

continuing to live is founded

on the existence of a certain contract.

The more detailed than

the second type of contract

that really underpins what we have

and what we can do with our free time,

are commercial agreements.

Commercial agreements define the specifics

of how people collaborate,

how they relate to each other,

how they have shared goals

and how those shared goals

result in benefits that

they then share among themselves,

which is very important

because if somebody is gonna spend

their entire life researching something

or doing something

or exploring to a certain direction,

they need certain assurances

that that time will be well spent.

Thankfully for us,

commercial agreements have evolved to

the point where you had people

like the Company of Merchant Adventurers,

who actually gave the money to this pilgrims,

on the Mayflower for them to sail

and settle the new world.

It put them in heavy debt

and it created a certain relationship between them

and the Company of Merchant Adventures.

But at the end of the day,

it enabled them the sail across the Atlantic ocean,

to the new world

and form a new social contract

for that new world

in the form of the Mayflower compact.

These agreements in the past

or at least during the time of the Mayflower

and sometime after were done

in various forums, marketplaces agoras,

in this case,

you see a rendition of Lloyd’s Coffee House

and you see people coming and reading,

coming to agreement,

reading certain agreements.

In the modern world,

the place that people come

to agreement is now the internet.

That’s the place where the most agreements,

both by the amount of agreements

and the value of those agreements

are created, agreed to and finalized,

and then seeing through to completion.

So the internet is now the new place

where people come to agreements

like they did before at Lloyd’s Coffee House

or the merchant hall of the Merchant Adventures.

Commercial agreements have obviously

evolved over the years.

They’ve evolved in both

what they can allow people to do,

how they can allow people

to engage in various cooperation

and in how they are maintained

and all these things are interrelated as well.

So you can start thousands of years ago,

up to 5,000 or even more years ago,

with stone records of sale

and ownership rights,

then you move on to various types of contracts

such as employment

and the guarantee of certain services

or certain guarantees of quality

on mediums like papyrus.

You then see the rise of debt

and debt in many cases

took its most extreme form

in the Roman empire,

at least in certain more ancient cultures.

And that was maintained on wood medium.

Then you arrive that paper

and then paper,

you see a momentous document here,

which is the first corporation,

the East India company,

and the creation of corporations

is then credited with starting

of the industrial revolution,

which allows all of us

to have massive amounts of goods

and extension in our life expectancy

and actually a lot of leisure time

to pursue our personal interests,

academic interests, scientific interests,

and once again move society forward.

So commercial agreements have evolved

in what they allow people to do

as well as in the manner

in which they are recorded and kept,

which once again gave people greater

and greater surety that the agreement

actually had force

and gave them greater

and greater reason to engage

in the behavior within that agreement.

For example, the East India company

was enabled by the Royal Court

and so it had very strong standing

and people had very strong belief in that

if they put effort

and resources in the East India company,

they would indeed receive back

what was owed to them.

We also see that societies

that have functioning systems of contracts

like the Roman Republic

see much greater rates of production, basically,

production of various metals,

production of various resources

that end up going on to allow people

to forget their basic needs

that are now taken care of

and focus on the more interesting

parts of human existence,

art, poetry, science,

all of those things are enabled

because people now have time

to engage in them

and they have time to engage in them

because the system of contract

somewhere enabled someone to,

for their own interests,

arrive at agreements with other people,

for their interests,

generate security, generate food, generate shelter,

generate all the things that people need

to save them the time to engage

in all those things we all care about

and have come to define human existence

like art, music, poetry, philosophy, science.

So it’s all quite connected.

And in fact,

in periods where their system of contract

is not stable

and there is not a reliable way for people

to arrive at agreement,

you see something literally

called the Dark Ages

where production plummets,

and all the things that we care about,

defining us as human beings also plummet,

art, poetry, philosophy,

go hand in hand lockstep almost

with the ability for people to have security,

shelter, food available to them in abundance,

and to have an excess of time

to engage in these more interesting things.

Then you see the rise of corporations,

you see the industrial revolution

and you once again see

a number of people engaging

in all kinds of activities

that we all find very worthwhile.

The evolution of contracts

in the current environment is something

that’s not surprisingly focused on technology

and the evolution of information technology,

as far back as the Telegraph,

even as far back as the Telegraph,

you had enforceable agreements

that were recorded on this medium of a Telegraph,

and people could very quickly agree

on things over huge distances.

They could have it memorialized

in a Telegraph tape

that then was considered legally binding

in many States,

in many jurisdictions.

You then moved on to Telex machines

before the internet.

We had the telecommunications network.

And interestingly enough,

you can still see a ticker tape

for recording certain data there

and a rotary phone.

So as the global infrastructure evolved

the system by which people communicated

and came to agreement

and memorialized agreements also evolved,

which accelerated the speed

of how they were able to interact

and work with each other

and the speed at which they were able

to achieve globalization

and various other benefits of globalization.

Then you saw digital agreements come into use,

and those are what underpin

a lot of your daily life.

So if you think about the Uber car

that comes to get you,

or the goods that are delivered

to your house from Amazon,

or even the content

you might read on the internet,

which is supported by advertising,

that needs to be tracked

in order for advertisers

to pay content producers,

to make the content that you consume.

All of that is managed by digital agreements,

internet based digital agreements

that come to define a lot of our lives.

They come to define

whether we can get a certain service,

at what rate we can get that service

and how soon,

and at what quality other services

will be made available to both us

and very importantly,

people in other emerging markets

where that service could completely redefine their life.

Now, the reason that smart contracts

and blockchains are of particular significance

is ’cause they are the next evolution of contracts.

And as we’ve briefly seen,

contracts are important both in what they can do,

and then the medium in which

they are recorded and stored

because the medium provides assurances

to the participants in those contracts

that the contract will indeed be fulfilled.

And therefore they have a reason to contribute

their resources and time and energy

and employment to that shared enterprise.

This is where smart contracts

are really the pinnacle

of contracts in general.

And we’ll go into that right about now.

So the first thing I think that’s important

is to understand what digital agreements

you seek to achieve

and what they seek to achieve

is an automation between participants

and performance data.

Participants are people with a mobile phone

or a computer

and internet connection

and they’re basically saying,

“I want a service.

“I want some content delivered

“and an advertiser to be paid.

“I want some goods delivered to me.”

And then there’s performance data,

which is just out there in the internet

from various other systems.

The GPS of the Uber car,

delivery of the goods

that the content was loaded up on your browser.

All of these come into

the category of performance data.

And then with digital agreements

are supposed to do is they’re supposed to automate

the relationship between participants

and all the performance data,

whether that’s data generated

by their participant

or by data generated from outside

of the participants’ control.

And it’s a fantastic thing,

and it’s revolutionized

and completely changed,

how many of our live our lives,

we don’t have to go to stores.

We can order things.

People can drive us places.

We can get all kinds of information,

’cause other people are willing

to pay for it through advertising.

It’s a fascinating, amazing world we live in,

which I think we should

all be extremely grateful for.

And this world that digital agreements

have given us can now also see

a step function increase

in what we can expect from it.

The reason that that increase

in improvement really happens

is that as great as centrally

run digital agreements are

they have a fatal flaw

in that they are not something

that can align the interests of the participants.

So there’s a fundamental flaw

where the people running these contracts

have an asymmetric extreme level of control over them,

which some people may have experienced

when an insurance policy wasn’t paid for them

or a refund wasn’t given to them

or somebody generated content

but wasn’t paid for it,

because somebody who runs the contract,

who actually runs the contract code,

decided to take a different path

from what was in that code.

And this tampering is a fundamental conflict

of interest where the participants,

which may be performing all their roles correctly,

have another participant,

which is the operator of this digital agreement

who does not have to perform their role correctly

because they operate the contract.

They control the system

that is going to be directing the proper payout

and assessment of the contract.

The second huge conflict of interest

is that these environments

that are run by large for profit entities,

fundamentally have a for profit motive

where their goal is a monopoly

over their relationship with participants

because they control the operation of this contract.

They control the inclusion of participants,

they control the inclusion of data

and this eventually results

in at least monopoly pricing in rent

and at worst stagnation,

lack of competition,

lack of new features

for participants and users,

and then being forced

to use those other systems.

Conversely smart contracts

and blockchains are tamper-proof.

That is one of the main words

that I would use to describe them

is that they seek to give you this automation

of a digital agreement,

but with a tamper-proof property.

And the tamper-proof is quite important

because now the participants,

know that regardless of the power dynamics

that they might have between each other

or between the person

who even made the contract,

there is no way that

their participation can be gained,

such that if you’re a small supplier of goods

on the other side of the world,

and there’s a big purchaser of goods,

before you would have serious doubts

about whether that’s large purchaser

would send you a contract,

they would not pay you

and they could do it ’cause they’re large

and they have lawyers

and 50 other reasons,

which is the case in many situations

is that we don’t even think about.

But now you could have a piece of code

running in a network of computers outside

the control of a large purchaser

or a government

or any other participant.

And as long as you fulfilled your obligations,

according to the contract,

you would be correctly, fairly,

and in a timely manner,

given what you wrote

and this parallel system of contracts

to what we’re used to is a momentous,

unique point in history

where people can now have agreements

that none of them can exert

asymmetric power dynamics over

and never in the history of agreements

did you have contracts

where the bigger participant

or the much larger participant

couldn’t get out of it

or modify it

or go to the person running the contract

and tell them not to pay you.

And this will, in my opinion,

change the way that people

interact with each other.

Now, one brief example of this

is something called Insurance.

Insurance is the payout of a policy

that an insurance policy holder

pays a premium for to eliminate risk.

So the insurance policy holder says,

“I see a big risk.

“The risk could completely upend my existence,

“make me a not productive member of society.

“I wanna eliminate this risk.

“I am willing to pay money on a monthly

“or yearly basis to eliminate this risk.

“As long as somebody will provide me

“a guarantee that that risk is eliminated,

“so I can continue being

“a productive member of society,

“that pursues my economic destiny

“the way I want.”

Amazingly, in many parts of the world,

if you do something as basic as farming,

you can’t get an insurance agreement

for lack of rainfall,

which is a fundamental risk for farming

in many parts of the world.

Because you can’t get insurance

against lack of rainfall,

after one or two seasons,

which is probably gonna be more likely

with increased climate change dynamics,

you find yourself to be a migrant, displaced,

unable to pursue your economic destiny

and in a situation which neither you

nor the larger global economy won,

simply because the local system of contracts

was unable to provide you

with the guarantees that you needed

to continue to pursue your economic destiny.

What we are all really talking about

when we talk about blockchains

and smart contracts

is various forms of technologically enforced agreements

that create a parallel legal system,

which is not dependent

on corrupt people driven dynamics

and never in history

has there been a system

that can properly allow people to agree

that could not be corrupted by people.

And that is extremely significant

for both the developed markets

that have huge systemic financial risk

that is consistently manipulated by people,

small groups of people

to their benefit

and to the detriment of larger society.

And very importantly,

to the people in the emerging market,

which don’t have a local legal infrastructure

that can provide a certain agreement to them,

but do have all the ability, desire,

appetite for risk,

and even in many cases,

resources to come together

and engage in the collaborations

that would come to change their lives

and the lives of those around them.

So if you’re ever wondering why blockchains

or smart contracts matter,

they matter because they change

the way the world works,

in a way that changes your life

and my life

and the lives of billions of other people.

Now, we’re going to switch to looking at

what are the issues that we,

as the very lucky few

who can work on technological innovation need to do,

what do we need to do

to get the world to this place?

We focus, our team Chainlink,

focuses on a specific problem called the Oracle Problem.

There’s a few other technical challenges.

There’s always technical challenges to solve,

always things to improve,

in AI, the traditional internet,

all kinds of things.

But we are gonna focus here

on the Oracle problem.

The Oracle problem is essentially

a barrier to the degree of automation

that a digital agreement

on a blockchain can do called The Smart Contract.

So smart contracts really

should probably be called

something like Tamper-Proof Digital Agreements,

but they’re called smart,

and that’s great, that’s fine.

But really they are extremely reliable containers

and environments to run contract codes

that are seeking to be entirely tamper-proof

and entirely beyond the control

of any single party.

And this is their unique property,

and it’s a fascinating unique property,

and it’s something I’m unbelievably excited about

and grateful for people generating.

But the reality is that

this property precludes their connectivity

to all the data that they need to know

to be used for insurance,

to be used for global trade,

to be for financial products,

because all of those contracts

are defined by external information about rain,

about delivery, about the market.

And this limitation has driven our industry

to be defined by tokens

and tokens are good.

Tokens have accelerated our industry

from just Bitcoin into somewhere

that people can make a smart contract

to define value,

define value transfer,

and put value onto these systems.

And I think that value will be used

in these more advanced smart contracts.

But I think more importantly,

it’s maybe time for our industry

to evolve into a bigger share

of digital agreements

and to get on the path

to be the dominant form of digital agreement,

because that is what will help redefine society

in the way we previously spoke about.

It is when smart contracts

are the ubiquitous

and dominant form of digital agreement

that we will see the change

that they can really bring to all of us.

This transition is underpinned

by the types of contracts

that smart contracts can be written about.

You can’t really write an automated agreement

if it doesn’t know the thing about

which it’s supposed to be automated,

and once we deliver data,

then I think we’ll see a huge growth

in what our industry is about.

We will see a larger percentage

of contracts about real events,

rather than ownership transfer

and token generation.

But token generation,

as an activity will grow,

value security tokens will grow

and usage of tokens will also grow.

So it’s really a win, win,

and more than anything,

an evolution of our industries.

Now, I’ve seen a few evolutions of our industry

in the seven plus years

I’ve been building smart contracts

and so that’s where part

of my surety about this comes from.

The first evolution I saw is Bitcoin Multisignature

where you had a smart contract,

only in the form of Bitcoins

being signed by multiple parties.

And as exciting as that is,

it is a very limited set of capabilities.

I really got into this space

and started building a lot.

When you saw protocols smart contracts appear,

when you can make new smart contracts,

by getting them into a piece

of software known as a protocol

and that took months,

it took six months, a year,

it was horrible.

You had to take months

or even a year

to get a new type of smart contract life.

I mean that wasn’t gonna go anywhere,

even though you had these

amazing tamper-proof properties

and people still use them.

The next shift that I saw

was protocol smart contracts becoming scriptable,

for which the Ethereum deserves

a lot of credit

because it took us from a model

where you had to spend months

getting a new contract into a protocol

to somewhere where in a day

you could sit down write some code

and you had a contract.

Once again, the issue was that

even though that’s a huge leap forward

and it generated this massive boom in tokenization,

and that’s a good thing,

’cause it added a lot of more value into blockchains

and gave us a first initial concrete use case,

much like the internet

gave an initial use case

for sending documents around universities

or certain versions of an unencrypted email,

was the initial version

of the Internet’s value.

Tokens are the initial version

of the blockchains value.

So I’m very grateful that that happened,

but that’s what you can generate.

That’s the data

and the contract you can write today.

I think going beyond that into a world

where you can now write contracts

using scriptable smart contracts like Solidity

and connecting that contract

to all the extremely important real world events

related to delivery of goods,

fulfillment of obligations for people

who create content

and pay for ads, global trade, insurance,

is really the next step

in the evolution of this space.

We are already starting

to see it in certain sectors of smart contracts.

For example, decentralized finance

is the creation of financial products

that are truly secure end-to-end

because they use an Oracle

or they need to be secured end-to-end

’cause they use an Oracle

and they use a smart contract platform.

This shift is driven

by many great companies like Synthetix,

AAVE, BZX, Nexus Mutual,

many great others,

that use an Oracle mechanism

that allows them to launch new markets

and provide all these useful capabilities.

I think the important thing to understand

about this shift in DeFi

or any future shift in other verticals

is that if you’re not talking

about making a token

or generating a contract for ownership

for some on-chain asset,

you’re talking about a contract

that exists in two equal parts.

One is on-chain,

which is the contract code

defining the conditions,

the other is off-chain

and the off-chain part is unfortunately,

not always as secure as it should be

because it’s connected to insecure systems

much like the contract

is often connected to private keys.

So one way to think about is

that the security of your smart contract

depends on the security

that the private keys exhibit

and the security of the data going

into that smart contract

is another critical component

because it controls it.

Many contracts are entirely

controlled by external systems,

which don’t meet the same tamper-proof

or reliability or security guarantees

of the contracts on-chain realization.

And so you need a system

that’s gonna assure and validate

and ensure that whatever is triggering the contract

is meeting the same high level

of reliability tamper-proof

and security standards as the contract.

And that’s really the goal

of the body of work

that we work on.

We achieve this by enabling

a general purpose Oracle mechanism

that is expandable to any input, any output

that needs to go into a blockchain network,

and that seeks to provide extremely

high levels of security and reliability

for the end-to-end security

of that digital agreement,

of that smart contract,

because it is the end-to-end security

that anybody will care about.

Nobody will rely on a contract

that succeeds to a point,

and then massively fails.

People will rely on a new form

of technologically enforced contracts

and agreement once it provides that tamper-proof

and is end-to-end.

And this is really the goal

of smart contract developers,

building more advanced next generation

smart contracts is how do I properly

build this end-to-end security

for my next generation contract

How do I really arrive at that reliability

in both the contract code

and its relationship to all the systems

that need to function properly

for the contract to provide its full value.

We achieved this through

a few fundamental tenants

and principles that we’ve already implemented

and are continuing to implement.

I’ll go through them briefly

and then we’ll cover some detail.

The first one is decentralization.

This is the ability

for an independent set of nodes

and network of nodes two perform

the computation that defines

the security of an Oracle.

So the security of the Oracle

is defined by an independent group of nodes,

providing a validation

and assuring that data is accurate,

is the source of the data

where it should be coming from

and is meeting whatever other dynamics

that it needs to meet.

We also focus very heavily on the security

of individual nodes in that network.

We believe that there’s a balance

between decentralization and node quality

that needs to be configurable by users.

And there needs to be a system

that gives them the capacity

for the decentralization

and the node quality

that they want in proportion

to their security assumptions,

which will vary on a use case by use case basis.

It is perhaps very relevant to note

that Oracle’s deal with a multitude

of use cases in

as far as there’s all types of contracts

and various verticals with various conditions,

various security requirements,

various data requirements,

whereas blockchains deal with the generation of blocks

and transactions in a very specific subset of opcodes

or certain VM capabilities.

Likewise, because data is really

the nature of the Oracle problem

and the data delivery

of accurate information to a contract,

we focus on data quality

very heavily in our system

and in our principles for building.

Some people ignore data quality

and say data quality is all the same.

I think it’s a huge mistake

and we spend a lot of time on

ensuring that data quality

is at a high level

and also making sure that

there are systems to continually provide more and more

insight about the quality of data.

One thing that we do is we enable

the quality of data through crypto economic security.

So we focus on how do we make

a data delivery mechanism

that can be secured not only

by various cryptographic approaches,

but also by the incentives that guarantee,

or to a certain degree,

provide assurance that data

will not only be delivered from the right source,

but in the right way at the right time,

at the right frequency,

and with all the other data delivery requirements

that there might be.

We practice something called Defense in Depth,

which means that we make sure

to layer on multiple security approaches

and layering on multiple security approaches

doesn’t mean that one subsumes the other

it means that decentralization

is a core fundamental tenant of security

that we believe in,

but people wanna combine

that in many cases with trusted execution environments,

zero knowledge proofs

and they should be able to do that,

to meet the specific requirements

of their smart contracts

and so end-to-end security

because it is really the developers

of these smart contracts,

that know the security assumptions

they wanna implement,

know the data quality that they need

for their contract to function

at different levels of value.

And there needs to be a flexible system

which will give them all the tools

in whatever configuration

they feel is best.

And that can scale as the value secured

by their system scales.

We believe very heavily in open source

and the immune system

that a piece of software arrives at

once it’s built open source

together with security research

and security audit community that’s worthwhile,

which we’re very lucky

to have and be a part of.

We also believe that

and have already seen

many blockchains wanting to devote

more integration resources

towards integrating Chainlink into their environment

because it is open source

and because they know

that it is something

that will always be available to them.

It is a worthwhile thing for them to integrate

because they are making an investment

in a blockchain middleware

that will always be there

to transport data to them.

That is something that we ourselves

can not create some kind of monopoly on

or extract monopoly rents, or prices.

And so we believe in open source,

we believe in working heavily with the security,

research and audit community

and we also believe that smart contracts

on any environment should be able

to have access to all of this data

and all of these inputs and outputs.

And that’s something

we’re also heavily working towards

because the bigger a universe

we have of smart contracts,

the more of a universe data providers

and other API providers

have to provide their data.

And so that makes them more likely

to provide data to all

of those individual universes,

because they now have a larger market

into which they can provide that information

and data collectively,

which is another dynamic

I’ll be speaking about in a few minutes.

Now, that we’ve briefly covered,

some of the tenants.

I think it’s also useful

to look at what is the nature

of the problem that we’re seeking to solve

and there’s a few nuances to it,

but we’ll essentially cover two

or three parts in this presentation.

The first problem is pretty direct

and at this point has become relatively obvious

to certain smart contract developers

that are more experienced,

is that you don’t want a single source of failure.

You don’t want a single place

that people can tamper with

and control your contract from

because that is not

the model of decentralized computation,

which underpins the security

of your smart contract.

So if you wanna retain

the decentralized security assumption and model,

you wanna eliminate that single point of failure.

And because your contract is now built

in both a computational format

and a middleware

and external data source format,

you need to consider this new surface area.

This new surface area

is what we specialize in.

It’s what we’ve successfully secured

for hundreds of millions in value,

and hundreds of millions more in value.

Very soon, we focus on creating

a decentralized computational resource

that is not a chain,

that does not make a blockchain,

that does not run smart contracts.

It validates and assures,

the reliability of the relationship between data

and contracts in various environments.

And the assurance of that relationship

is what allows people to expand

the features of their contract

while very importantly,

maintaining the security

and end-to-end reliability

and tamper-proofness of that contract

and this is what we do

at a fundamental level with decentralization,

in a decentralized computational environment

called a Decentralized Oracle Network.

It’s a relatively straightforward solution,

it’s working now.

You can see it in various places


and various other environments

where people have composed Oracle networks

to properly validate inputs

into their contracts using decentralized computation

through decentralized Oracle network.

The next dynamic that we focused on

and that we architected from the beginning

into our system from day one

is data quality

and data quality is once again, very important

because garbage in, garbage out.

If you don’t provide high quality data

that can be relied on to a contract

that is controlled

and essentially driven by that data,

then that contract will be unable

to provide the assurances

that it seeks to provide to the contract creator.

And even more importantly

to the contract creators users.

And this is why assuring data quality,

that data is something that the contract

will both receive

and receive at a high level of quality

is an extremely important

and a fundamentally different problem

from the operation of a blockchain network.

And it is the problem that we’ve spent

a lot of time and resources

on approaching in an educated well-informed,

well architected manner.

Once again, the way to examine this issue

is how do we not wanna approach this issue?

We don’t wanna approach this issue by

first of all,

not including premium data.

In the world of data,

there is free data

and there is trial data

and then there is paid for data.

Paid for data is what people use

for high value digital agreements

that control large amounts of value.

If you don’t have premium data

in more advanced digital agreement industries,

you won’t trigger a contract

because it’s outside the realm

of the reasonable to say,

“I’m gonna use trial plan

“or free data to trigger $100,000,000 agreement

“when that trial plan or free data

“has no guarantees about its quality

“or its availability

“or anything else.”

So the first issue that people wanna avoid

is the issue where there’s a node

that can’t access premium data,

or doesn’t have access to premium data

for whatever reason.

I have unfortunately seen

some people building Oracle mechanisms

that can not access a premium paid API.

That is something that has not been

architected into their system,

and it precludes them from accessing

the type of data that could actually

be used hard for a high value contract,

such that even if somebody builds an MVP

or something with their system,

when the chips are down

and people decide whether

they wanna trigger large amounts value with

an Oracle mechanism that is consuming free

or trial plan data,

I imagined that the majority

of responsible people will say that,

“No they in fact need high quality premium data.”

They also need,

if they think about it in a deeper dimension,

they need an assurance

from the node operator,

from the data delivery mechanism,

that has access to the data,

that the data will actually be delivered,

because if they don’t have that assurance,

then even if it’s connected

to a high quality data source,

you’ll arrive at a place where

you’re not assured that

the data will be delivered.

You just know that the node operator

or the middleware has access to data,

but how are you assured

that the data will actually be delivered

and what are the consequences

and incentives to make sure

that the data is delivered.

This is another place where

we have architected from

the very first day of our systems inception.

And we have decided that not only

where will our system excel

at storing credentials or passwords

for accessing premium data

in a secure tamper-proof manner,

but also it will excel at providing guarantees

that once a node

or an Oracle network is connected

to a set of data sources,

it is then able to provide assurances

to the contract creator

and even more importantly,

to the contract creators users,

that that data will be delivered.

This happens through something

called Unchained Service Agreements.

It’s essentially the use of a smart contract

or the blockchain infrastructure

in which the contract is operating

to create an on-chain smart contract

and I guarantee that data

will be properly delivered

over a certain time period

at a certain level of quality,

at a certain frequency,

and within any other set of dimensions

that smart contract developers wanna define.

And it is really the definition

of these various dimensions

that comes to define an Oracle mechanism

that can properly cater

to the unique properties

of every smart contract

that might come into existence

that needs to secure large amounts of value,

growing amounts of value that needs assurances

that’s not only is the Oracle mechanism

able to scale on a decentralized basis.

It’s able to scale on

all the other security properties

that smart contract needs

as well as the quality of data

and that’s all something

that can get memorialized

and made enforceable

using the same system that

the smart contract relies on,

it guarantees that it gives to users.

And now, users can trace the end-to-end security,

and end-to-end guarantees,

and the end-to-end reliability of a smart contract,

which is what we’ll come to define

it’s actual reliability for them,

and whether they ended up

putting hundreds of millions,

billions of dollars into that specific contract.

One of the dimensions that

a well functioning on-chain service agreement

framework enables is the ability

to attach deposits or stake

or economic incentives

to the proper execution of those agreements.

And it is this dimension

of crypto economic security,

which is also an important part of our system

albeit not the only part.

Once again, smart contract developers,

partly based on their users’ preferences,

should be able to configure the security dynamics

between them and various external systems

on the basis of decentralization,

hardware, zero knowledge proof,

and other cryptographic techniques,

and crypto economic security.

So crypto economic security

is something that I’m gonna jump into now

and talk through some of the concepts there

that are not always as clean cut and simple,

because it’s a partly new field,

partly evolving field.

The first dynamic around crypto economic security

from staking is a dynamic

that I have always at least myself

internally called Implicit Staking.

Implicit staking is one of the dynamics

that has successfully secured Bitcoin

and other blockchain networks

that might not actually have people lose value

if they deviate from the proper operation

of a protocol as a minor,

but it does relate to that minor

knowing as an irrational economic actor,

that if they deviate from

the proper operation of the protocol,

and if they have large amounts of Bitcoin

or large amounts of mining equipment,

which is essentially future Bitcoin

that Bitcoin and that mining equipment,

which is future Bitcoin will lose value.

This is what I consider

to be implicit staking,

where the node operator

or the participant in the protocol

knows that if they deviate

the value of an asset will drop

and it may drop very low,

may drop to zero,

if they and enough others deviate.

And this implicit staking,

I think has created a lot of security

and created a lot of proper dynamics

between protocol participants in various blockchains,

that might not have staking enabled,

but I think it proves out

to a large degree that economical rationale

behind the fact that you have an asset,

you don’t want the asset

to depreciate in value.

Therefore you will participate

in a protocol properly.

Then there’s something called Explicit Staking,

or at least what I consider expilict staking,

where you have specific conditions

under which a single participant

in the blockchain infrastructure

would lose a very specific set number of assets,

usually in the form of tokens,

if they deviate.

So I’m a minor,

I participate in a network.

If I deviate in a certain fashion,

I lose a very specific number of tokens.

Therefore, I have a very clear relationship

between my proper operation of the protocol

and what I would lose as somebody that deviated.

Know this is fine

and this is great,

this is fascinating.

And I think it’s great

that all these new advances

and how blockchain networks

and smart contracts operate are happening,

and I’m a big, big fan of them,

because I think there is a lot of innovation,

a lot of things that can happen

to improve the way

that blockchain networks function in various ways

and I’m very excited by that

because it’s, once again,

blockchain networks also need to evolve

and reach all kinds of new capabilities

for us to reach that world of smart contracts

changing the way society functions.

But the reality is that this form of staking

is right now used for generating blocks.

It’s used for generating blocks,

that secure transactions

in a blockchain network,

a smart contract network filled

with transactions about various token transfers

or smart contract code.

I just want to clarify that

even though this is an explicit form of staking,

and it is people staking

against the operation of a blockchain infrastructure,

it is them staking against the generation of blocks

and not the delivery of data.

There are many people

who can copy paste a blockchain network,

generates some kind of staking system

and have a smart contract network

that is generating blocks

and securing transactions.

And I think there’s a lot of interesting work there

and a lot of great people doing that.

I really do,

but I just wanna highlight the difference

between the types of explicit staking that exists.

Explicit staking for generating blocks

and making the smart contract network

does not generate data delivery guarantees.

It only generates blocks

because that is what that stake is about.

Conversely, in our system,

because we have service agreements

and because our system is architected

from day one for proper data delivery,

our explicit staking focuses on the proper

fulfillment of a service agreement

and its conditions,

to assure users and creators

of smart contracts that their relationship with data

and with external systems

will be properly incentivized

such that even if you have

an external decentralized computational environment,

like an Oracle network,

computing and validating data

into a system like a smart contract network,

you now also have a guarantee

for a specific contracts requirements

and a user groups security needs

that the delivery of data will generate

a certain amount of user fees

to the node operators delivering that data

and they will in turn

provide certain security guarantees

about how many node operators,

the quality of the node operators,

the hardware of the node operators,

the cryptographic techniques

used by the node operators.

And in this case,

the crypto economic guarantees

the deposit put in a state of lockdown

for assurances that the data

will be delivered properly.

Now, this is also highlighted

by what happens when a service agreement

in our system releases stake.

In proof of stake systems

where the staking often goes to networks

or it’s burned

or something else happens to it.

In our case,

many of the service agreements

will likely go to the smart contract developers

and in some cases might even be given to users

because the service agreement is meant

to guarantee a very specific outcome

around data delivery to a specific contract

under the extremely specific conditions

defined in the service agreement.

So once again,

we’re focused on data delivery,

highly secure systems for data delivery.

There are many forms of stake

our systems I consider having explicit stake

and implicit stake

where node operators might have

a certain amount of link

and they might stay another certain amount

of link for specific contracts.

And our goal is really

to make sure that the data delivery mechanism,

in addition to the quality of data,

is properly functioning

for the end-to-end security of a contract

to be guaranteed end-to-end.

So that is the goal of our method of staking

or explicit staking assumptions

and how we’re approaching it.

This fits into our entire framework

and how we’ve architected it from day one.

And once again,

it focuses on data quality

and the proper staking

of value against data delivery.

All of this really creates a few cycles.

I’m going to briefly now jump into

some of the cycles

and the key dynamics around those cycles

that this creates.

One of the first cycles

is that smart contracts end up paying user fees,

those user fees are paid into pools

for specific Oracle networks.

So a specific Oracle networks,

delivering specific individual pieces of data

to certain smart contracts.

on various environments,

begin to get more smart contracts,

paying fees for that data.

The amount of fees grows

and that surplus in fees

eventually leads to an improvement

of that Oracle network,

eventually leads to more stake

from the nodes in that network

eventually leads to more security guarantees

in the case of better hardware

or more costly cryptographic techniques

used in existing hardware.

And it is really the relationship between user fees

and the node operators

and the growth of smart contracts

to generate more user fees,

which is one of the key cycles

that we are getting underway successfully now.

Now, when user fees reach a certain level

on a specific network by network basis,

we will then see a need

to properly assign user fees

to the improvement of that network.

The initial categories of what a governance structure

could look like for an Oracle network

is the amount of nodes,

the quality of nodes,

the quality of data,

and that includes the frequency of updates

in the various service agreement

that this network seeks to guarantee.

So I think there is

a very productive virtuous cycle

between more smart contracts,

generating greater amounts of fees,

those greater amounts of fees,

leading to a larger pool of fees

for node operators to seek.

That greater pool of fees

then enabling those node operators

to spend more money on security

in various forms,

better hardware, better cryptographic techniques,

more nodes in an Oracle network,

crypto economic security from explicitly staking

against a service agreement.

All of these are dimensions,

which will once again,

vary by Oracle network

because the Oracle networks

need to be flexible in serving

the needs of specific contracts

and specific verticals of contracts,

such that the service agreements

will be different based

on the contracts that

use different Oracle networks.

This first virtuous cycle

is something that we’re seeing come under way now

and we’re already seeing node operators

proactively thinking about

how do I become a more secure,

more attractive node operators

to be included in more Oracle networks,

to get a greater share of fees,

to then build my performance history,

have more money to expend on greater security.

And with the greater security

comes the ability to provide

more end-to-end security guarantees

for larger amounts of value,

larger amounts of value,

then come to define our space.

More value in smart contracts

makes more things like DeFi

more attractive, more news,

more interest from traditional players,

fintechs, InsureTechs,

more crypto startups that have funding

to pursue the opportunity

in a space with more smart contract value

and the virtuous cycle continues.

So it’s an important virtuous cycle

that we already see underway.

And we’re doing our best

to accelerate in the right direction.

The second virtuous cycle

is the one around data,

because as I said,

“The breadth of smart contracts

“that will come into existence

“is as big as the world of agreement is.”

And because digital agreements

are now the preferred form of

the way people conduct commerce

in global industries

or local industries

or various sized industries.

And because smart contracts

can only be built about the data,

which they have access to,

you now begin to see a cycle,

and I’ve seen this for years,

but we are now seeing this cycle accelerate

where you have a larger smart contract market,

which creates more of a reason

for data providers to provide data,

which creates more data being available

to smart contract developers,

which I have personally seen create

the creation of new markets,

new user experiences

for a greater sized market of smart contract users

and a greater size market

of smart contract value,

which then begins the cycle again.

So you have hardware requirement

where if you have an existing DeFi product

or an existing insurance product,

you need certain types of data to expand it,

or you need certain types of data available

in end-to-end secure way

to launch a product at all.

And I’ve seen both.

I’ve seen some of our users launch with us

and arrive at over a hundred million in value secured

in less than a year.

And they were able to launch

and they were able to improve

because they didn’t have to build an Oracle mechanism.

I’ve also seen some of our existing users

successfully have over $100,000,000 in value

and be able to launch new markets

very quickly to the benefit of their users,

who then brought other users

and expanded the size

of the smart contract, ecosystem,

and market in general,

which is truly the beginning

of our spaces growth

into the dominant form of digital agreement.

These cycles, in addition to others work together.

So everything that seeks

to provide more smart contracts value

that is then driven by the value in those contracts,

forms a very positive,

possibly virtuous cycle

between all those dynamics.

We right now,

in addition to these two cycles

are working on a number of things,

but these two cycles are really the things

that I think are beginning to accelerate

and what we’re seeing,

we’re seeing both the generation of more data,

both in the variety of data

and the quality of data being made available.

We’re seeing people build,

we’re seeing that create more usership

that creates greater value,

larger market for data providers.

And we’re seeing more security from node operators

being provided in order

to get a greater share

of the slowly growing initial pool of fees,

which is growing.

I’m very excited

and truly thrilled to announce

that we’ve arrived at a place

within our own internal thinking

about how a grants system should work

for the acceleration of these two dynamics.

Now, it’s obviously a very complicated question

about how you can properly incentivized

and organized large groups of people

to come together

and build a great piece

of open source software.

But we’re very, very grateful

to see a number of ecosystem companies already

building truly next generation tooling

and capabilities into and around Chainlink.

And in addition to supporting that,

we now have a certain plan

about how we’re going to accelerate

the growth of our ecosystem

and how the Chainlink ecosystem

is going to grow

by including the academic research community,

the larger crypto blockchain community,

and various other communities

that come to see this as a worthwhile problem

that they wanna help solve

an open source collaborative manner.

The first category is really gonna be around

making sure that high quality data

makes its way into the Chainlink network.

And as more data makes its way in there,

more contracts get created,

larger market, more data,

but there needs to be people

that spend time on making sure

that data is put into the Chainlink network

higher quality data is put in,

adapters are built,

integrations happen with all the resources

that the Chainlink network seeks to provide.

Once those resources are integrated,

you then switch to another set of concerns and hurdles,

which is around developer tooling.

So you need to develop

all kinds of systems and capabilities

and improvements to make sure that smart contracts

and developers of smart contracts

can more easily access this data,

more efficiently included into their applications,

greater assurances for themselves

that there’s properly working

and essentially accelerate the development cycle.

The speed at which smart contract developers

can add all of this data

into their application.

And this is where new developer tools

and Chainlink grants related

to data are gonna be focused.

Then you also see a multitude

of different environments

that require this data

and all of those environments

require thoughtful integration

and thoughtful focus on how do we properly assure

the relationship between the Chainlink network,

the Chainlink node operators

and these various blockchain environments.

Now we have been doing a lot of that

and that’s been going well,

and we’ve been launching

many new networks on a regular pace,

both public and private variants,

but the enormity of this is,

is really something that would benefit

from a larger open source effort.

And we’re also very glad to see

that there’s open source communities

and specific blockchains

and core developers

and various people in those environments

that want a middleware

and want data available

to the developers building in those systems.

And so we’re very excited

to approach the integration

of all these environments

in a very thoughtful kind

of community centric way.

In addition to the work

that we’re able to help with.

This once again,

creates more environments

for more smart contracts to operate in

creating a larger market,

creating more demand for APIs

and data providers to put their data in APIs,

into various blockchain environments.

The next category is the category of reputation tools

and the monitoring of Chainlink networks

by node operators, by users.

This is something that will seek

to provide insight for users

into whether a node operator is indeed reliable,

which will then create that virtuous cycle

between highly reliable node operators

being chosen more often,

getting more fees,

having more fees to deploy

towards more secure capabilities,

providing more stake,

to get more fees.

And the real dynamic here is around

making sure that high quality node operators

get more fees,

medium quality node operators,

get the fees they deserve.

And then there will be

a multitude of other node operators,

which will be used in Chainlink networks

that depend heavily on decentralization.

And they depend heavily on a large multitude

of unrelated node operators.

But the goal is to really to create a cycle

between greater security,

assuring more people that

there is end-to-end security for their application.

And then that creating more contract value,

which creates more fees

to pay for the security of that value,

which then goes back

into the Oracle networks

that it improved to continue that virtuous cycle.

So this is the initial key points

of our grant program.

I’m sure there’ll be more details soon

and we’ll have more evolutions

and nuanced developments

of how the grant program evolves.

But the initial focus

is on how do we properly

make these cycles work in the proper speed

and relationship with all the parties involved,

which is obviously a multifaceted group

of different parties,

but we’ve already started to see this move.

We’ve already started to see node operators

seek to spend,

to get more fees from better security.

We’ve already seen more usage,

allow us to get more data providers

into these environments.

And I think that the addition

of more blockchain environments

is something that’s only gonna accelerate this

because it creates more of a market

for both data providers

and node operators to gain fees

from as the larger smart contract industry grows.

If this body of work

is something that’s interesting to you,

and it seems like something

that’s worth working on,

then we’d be very excited to speak with you.

We’re an extremely committed,

direct group of people that

are very excited to be working

on something that we think is truly valuable

within an idea meritocracy

where the best ideas do end up winning out

and where everybody’s able to come together,

work remotely on their own schedule

in the way that enables them

to get the best out of themselves

while attaining truly great results

and moving both our collective work

and the whole blockchain industry forward.

If that sounds good to you,

then please talk to us.

We are growing our team at the moment

and otherwise I’d also like to say,

thank you very much

to our wonderful community,

who’s been so immensely supportive

and helpful than us making sure

that all the relevant people

know about how truly important

of a problem this is,

as well as the node operators,

developers, data providers, academic researchers,

and all the other people that have contributed

to making this a reality.

Thank you very much.

And I’m looking forward

to speaking with many of you soon.

Thank you.