Imagine that you’re a sheep farmer. You purchase a dog and a lion and tame them until they become gentle enough to protect your sheep from wolves. The dog manages the sheep while the lion checks the dog to ensure it doesn’t hurt the sheep. So what happens when the lion decides to prey on the sheep?
My analogy looks like a lazy one. However, I trust that you got a hint of the point. This analogy is synonymous to the case of Chainlink where the lion represents Tier 2 nodes, the dog represents the Tier 1 nodes, and the sheep represents the users on the network.
I hope that you get an additional understanding of the whole concept of game theory in Chainlink after reading this comment. I’ll align my writing with that of the original contributor @Samuel94 to talk about:
- Incentive and security on Chainlink
- Users and why they matter
- Why Chainlink matters in the first place.
Incentive and security on Chainlink
Every decentralized network or blockchain has a way of rewarding those (validators) helping the network function as intended. This is popularly known as an incentive mechanism. For Bitcoin and other Proof of Work blockchains, the block reward and transaction fees serve as the incentive.
However, Chainlink is not a blockchain. In its 2021 whitepaper, it proposed using two types of nodes to help the network function as intended. The nodes are divided into two tiers: 1 and 2. Tier 2 is superior to Tier 1 just like in the lion-dog analogy. Tier 2 nodes ensure that Tier 1 nodes act honestly.
To participate as a Tier 1 node, you’re required to buy a stipulated amount of Link tokens and lock up as a collateral to ensure you act honestly. If by stroke of chance you decide to act dishonestly, your tokens will be slashed and given to the whistle blower, that way, you are punished and the whistleblower is rewarded for good behavior.
The decision to slash your token is made by tier 2 nodes.
However, Tier 2 can act dishonestly too, thus the reason for the vulnerability and the subsequent proposed solutions.
Why Chainlink matters in the first place
Smart contracts do not have the capacity to settle internal transactions that depend on external events.
If a football gambling site is built on a blockchain, and gamblers make their bets on the smart contract, the smart contract needs the help of an oracle to supply it with the football match outcomes. This way the conditions of the smart contract can be met. This is what oracles like Chainlink do.
Chainlink is a decentralized oracle as opposed to centralized oracles whose data can easily be manipulated or hijacked.
CoinGecko recognises Chainlink as the most popular oracle based on its current $2.8 billion market cap.
Top DeFi protocols such as Aave, Compound, and Synthetix depend on ChainLink to settle their transactions. Chainlink supports over 14 blockchains and Layer 2s in addition to having processed over 6 trillion + transactions.
I believe you can now understand the importance on Chainlink on blockchain ecosystem.
Users and why they matter
The very first goal of blockchain technology is to encourage and promote decentralization, security, and privacy for users. And all this has to happen without the need for an individual to trust another individual, hence called a trustless system.
According to @Samuel94 from this research summary, the researchers notice that users cannot tell if the incentive mechanism in Chainlink ensures the nodes in Chainlink act honestly. In other words, user can’t directly tell the security situation for Chainlink mechanism by examining its incentive mechanism.
If a user cannot directly tell that a blockchain or associated network is open and secure, it breaks the basic rule of decentralized networks and could hinder the growth of such a network.
Blockchain networks are made for users to meet their needs and such needs include security and transparency.
@Samuel94, from this research summary, the researchers notice that users cannot tell if the incentive mechanism in Chainlink ensures the nodes in Chainlink act honestly. In other words, user can’t directly tell the security situation for Chainlink mechanism by examining its incentive mechanism.
If a user cannot directly tell that a blockchain or associated