“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,
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.