TL;DR
- Chainlink 2.0: Next Steps in the Evolution of Decentralized Oracle Networks presents a vision for the future of the Chainlink Network beyond its initial conception in the original Chainlink whitepaper.
- The whitepaper describes Decentralized Oracle Networks (DONs) as the technical foundation of Chainlink 2.0 that enables hybrid smart contracts by providing universal connectivity to external resources and scalable off-chain computation, aligning with the long-term vision of creating a Decentralized Metalayer.
- This expanded vision of the Chainlink Network and smart contract functionality focuses on seven key areas: hybrid smart contracts, abstracting away complexity, scaling, confidentiality, order-fairness, trust-minimization, and incentive-based (cryptoeconomic) security.
Citation
- Breidenbach, Lorenz, Christian Cachin, Benedict Chan, Alex Coventry, Steve Ellis, Ari Juels, Farinaz Koushanfar, Andrew Miller, Brendan Magauran, Daniel Moroz, Sergey Nazarov, Alexandru Topliceanu, Florian TramĆØr, and Fan Zhang. āChainlink 2.0: Next Steps in the Evolution of Decentralized Oracle Networks.ā 15 Apr. 2021.
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Core Research Question
- How can the functionality of oracle networks be broadened to provide a general-purpose, bidirectional, compute-enable interface between and among on-chain smart contracts and off-chain systems?
Background
- The oracle problem is the challenge of connecting smart contracts to off-chain resources due to the inherent security properties of the blockchain. This oracle problem exists for every blockchain network and smart contract platform.
- Decentralized Oracle Networks (DONs) are an approach to the oracle problem using a network of nodes which connect disparate on-chain and off-chain systems and allow for unidirectional or bidirectional communication.
- The original Chainlink whitepaper was published September 4, 2017 and was the first to introduce and describe the construction of a decentralized oracle network.
- The Chainlink mainnet launched May 30, 2019, initially on the Ethereum blockchain, and was the first in-production oracle network composed of independent oracle nodes.
- Off-chain computation describes the usage of an oracle network to perform computations off-chain whose execution on-chain is undesirable due to various factors such as costs, scalability, and privacy, therefore complementing blockchains.
- Committee-based consensus protocols describe a class of Byzantine Fault Tolerant (BFT) algorithms of known nodes achieving group consensus, a technology which predates blockchains.
- Decentralized Metalayer is the long-term vision presented by the Chainlink 2.0 whitepaper that aims to provide developers and users with a unified machine model that is seamlessly mapped onto decentralized resources.
- Hybrid Smart Contracts describe smart contracts which perform computations both on-chain and off-chain, resulting in the creation of decentralized applications that are more advanced than on-chain logic in isolation.
- Meta Contracts describe smart contracts operating entirely within a decentralized metalayer and can be considered a more evolved version of hybrid smart contracts.
Summary
- There is an increasingly expansive role for oracle networks beyond their original design of forwarding data on-chain, one in which oracles complement and expand new and existing blockchains by providing fast, reliable, and private connectivity and computation for smart contracts.
- To describe the future evolution of the Chainlink Network, a fresh definition of āDecentralized Oracle Networksā (DONs) is provided as a middleware layer that offers an interface for smart contracts to connect to off-chain resources and access efficient, decentralized off-chain computation.
- A DON is a network maintained by a committee of Chainlink nodes, which is rooted in a consensus protocol and can support an unlimited range of oracle functions chosen by the nodes. DONs explicitly support smart contracts running on a main chain, which can take the form of any existing or future blockchain.
- The paper covers the security model and goals of DONs, their interface and capabilities, examples of DON-powered decentralized services, Fair Sequencing Services to prevent front-running, the Transaction-Execution Framework for DONs syncing with a main chain, the methods of trust-minimization, deployment considerations, as well as defining the economics of the Chainlink Network and cryptoeconomic security through staking.
- The Chainlink 2.0 Whitepaper focuses on seven key advances including hybrid smart contracts, abstracting away complexity, scaling, confidentiality, order-fairness, trust-minimization, and incentive-based security.
Method
- DONs are first described by defining their security model and underlying components:
- DONs are distinct distributed systems, initially planned to be implemented using committee-based BFT consensus protocols in order to augment the capabilities of smart contracts on existing blockchain networks.
- DONs can be built upon either committee-based or permissionless consensus protocols, where deployers can choose to adopt either approach, following Chainlinkās existing heterogeneous network design.
- DONs use a ledger data structure where, unlike blockchains, the ledger of a DON is not treated as a standalone system but instead is anchored to an existing blockchain network and aims to enhance that chainās capabilities.
- DONs provide networking, storage, and computation for smart contracts and achieve these properties through the usage of executables (continuously running deterministic code) and adapters (bi-directional interfaces to external resources).
- Networking is achieved through adapters, which are a generalization of the adapters used in the Chainlink Network today. They are bidirectional and can send/receive data to and from blockchains, web servers, external storage, and other DONs.
- Computation is achieved through executables, which is the basic unit of code on a DON consisting of an array of logic entry points and a corresponding array of initiators, which are analogous to the initiators used in the Chainlink Network today.
- Storage is achieved through both the DONās ledger and through external decentralized storage networks which are bridged by an adapter. Additionally, DONs can connect to traditional cloud providers for storage.
- The seven key design goals of DONs are described first in an initial overview and further explored throughout the paper. These include:
- Hybrid Smart Contracts
- The vision for the future of Chainlink centers on the idea of securely combining on-chain and off-chain components into hybrid smart contracts.
- On-chain code is where cryptocurrency ownership is represented and provides robust anchors for decentralized services.
- Purely on-chain contract code is limited and unable to connect to external data resources, confidential computation, or a secure source of randomness.
- Adding an off-chain component through one or multiple DONs provides access to data feeds, randomness, off-chain computation, and more, creating a hybrid smart contract.
- The other six goals aim to achieve this overarching vision of creating smart contracts that include on-chain / off-chain contract composition.
- The vision for the future of Chainlink centers on the idea of securely combining on-chain and off-chain components into hybrid smart contracts.
- Abstracting Away Complexity:
- Chainlink 2.0 aims to abstract away the complexity of creating hybrid smart contracts by leveraging DONs to fulfill the long-term vision of a decentralized metalayer which provides the following features:
- Developers can construct their contract as a virtual application using a unified machine model.
- A compiler can be used to automatically generate the on-chain smart contract and off-chain executable DON logic, which together instantiate the DApp.
- Hybrid smart contracts are the first step toward meta contracts, which are applications coded on a decentralized metalayer that encompass on-chain logic as well as off-chain computation and connectivity.
- Chainlink 2.0 aims to abstract away the complexity of creating hybrid smart contracts by leveraging DONs to fulfill the long-term vision of a decentralized metalayer which provides the following features:
- Scaling:
- Widely used existing permissionless blockchains have their bandwidth saturated, which has resulted in the launch of more performant chains and various layer-2 solutions, which require oracle networks that support low latency and high throughput.
- DONs derive their performance through the use of fast, committee-based consensus protocols, which are combined with the permissionless blockchain and layer-2 networks they support, creating hybridization.
- DONs leverage a transaction-execution framework (TEF) that performs the task of regularly syncing data from a DON to the main chain.
- By concentrating transaction and oracle-report processing off-chain, the transaction throughput is increased, latency is decreased, and fees are reduced.
- Confidentiality:
- Blockchains provide a high degree of transparency, but this comes with the trade-off of disincentivizing data providers from publishing sensitive or proprietary data on-chain.
- DONs provide a solution where the transparency of blockchains is combined with confidentiality protections:
- Confidentiality-preserving adapters: DECO (zero knowledge proofs of TLS web session data) and Town Crier (trusted execution environments) are two technologies that enable oracle nodes to retrieve external data privately, thereby protecting user confidentiality.
- Confidential computation: DONs can conceal information from blockchain networks by using secure multi-party computation and/or trusted execution environments to perform privacy-preserving computations on datasets.
- Support for confidential layer-2 systems: DONs can support a variety of layer-2 solutions including those that leverage zero knowledge proofs to ensure transaction privacy.
- Order-fairness for transactions:
- Blockchains are ephemerally centralized in the sense that individual miners and validators can order transactions in any way they choose for their created block. Transaction order can also be manipulated by users changing the amount of fees they pay mining nodes.
- A common adverse effect from transaction reordering is front-running, where a miner or a bot can observe transactions in the mempool and insert its own exploitive transaction in front to siphon value from the user.
- Fair Sequencing Services (FSS), which can run on a DON, aims to address this problem by allowing smart contract developers to predefine ordering policies for their applications.
- FSS introduces order-fairness and helps prevent front-running, back-running, and other related attacks on ordering of any type of transaction including oracle reports.
- FSS enables this by using a DON to order transactions off-chain and forward them on-chain, which allows transactions to be ordered by time of arrival and lowers the transaction fees users need to pay.
- Blockchains are ephemerally centralized in the sense that individual miners and validators can order transactions in any way they choose for their created block. Transaction order can also be manipulated by users changing the amount of fees they pay mining nodes.
- Trust minimization:
- DONs aim to provide a trustworthy layer of support for smart contracts and other oracle-dependent systems through decentralization, cryptographic tools, and cryptoeconomic security.
- Users may prefer a trust model where the main chain is deemed more trustworthy than the DON itself. This model is supported through various optional trust-minimization mechanisms including:
- Data source authentication, which uses cryptographic signatures to digitally sign data and prevent tampering.
- DON minority reports, which allow a minority subset of DON nodes to report majority malfeasance of the network.
- Guard rails, which use on-chain logic on the main chain to detect anomalous conditions like price deviations in order to pause contract execution.
- Trust-minimized governance, which allows for community-inspected updates and decentralized emergency interventions.
- Decentralized entity authentication, which leverages public-key infrastructure such as ENS to identify Chainlink nodes.
- Incentive-based (cryptoeconomic) security:
- While the above mechanisms ensure DONs continue to operate with an honest majority, it is equally important to ensure the majority of nodes remain honest.
- This can be achieved through the use of cryptoeconomic incentives, which, in the context of the Chainlink Network, is derived from implicit incentives and explicit staking.
- Implicit incentives are derived from future fee opportunity (FFO), where any malicious activity creates an opportunity cost of losing future fee revenue. These incentives exist in the Chainlink Network today.
- Explicit staking is a mechanism through which nodes lock LINK tokens into a service agreement with predefined parameters, where the nodeās stake can be slashed (taken away) for malicious behavior.
- Explicit staking in the Chainlink Network has been designed with three key innovations:
- A powerful adversarial model that encompasses attacks other systems do not protect against such as prospective bribery where bribed nodes are selected on a conditional basis, such as offering guaranteed bribes to nodes who are selected for specific roles.
- Super-linear staking impact where an adversary must have a budget greater, by a quadratic factor in the number of nodes, than the combined deposits, increasing the cost of attack and providing more scalable economic security.
- The Implicit-Incentive Framework (IIF), which defines the empirically measurable financial incentives beyond staking, such as FFO.
- The combination of the IFF and super-linear explicit staking creates a virtuous cycle of economic security where as new fee-paying users enter the system, the marginal cost of economic security drops for future users, creating long-term sustainability for the Chainlink Network.
- Hybrid Smart Contracts
Results
- The Chainlink Network will broaden in functionality over time to achieve the long-term vision of a decentralized metalayer, by supporting the creation of hybrid smart contracts composed of on-chain and off-chain infrastructure.
- With this new scope of functionality, the Chainlink Network can achieve multiple oracle infrastructure upgrades that dramatically enhance the capabilities of existing and future blockchains, layer-2 networks, and web systems.
- The whitepaper lays out an ambitious vision, which begins with the development of increasingly advanced hybrid smart contracts and culminates with the creation of a robust, decentralized metalayer that opens up the long-term possibility of meta contracts.
Discussion and Key Takeaways
- The definition of Decentralized Oracle Networks (DONs) has significantly evolved since its conception in the 2017 Chainlink whitepaper. Initially described as a data transfer mechanism, DONs also encompass off-chain computation and an entire suite of trust-minimized, off-chain services to enhance blockchains.
- DONs enable a vast array of new smart contract use cases that were previously infeasible due to technical limitations around scalability, privacy, and connectivity of smart contracts that exist solely as on-chain code.
Implications and Follow-up
- The off-chain services powered by the Chainlink Network aim to provide significant benefits for the blockchain ecosystem, allowing complex operations to transition off-chain, lowering the computational burden placed on blockchain networks.
- The expansive functionality of DONs outlined in the paper may translate to increased adoption of existing blockchain-based ecosystems, as well as the creation of new categories of decentralized applications that leverage external connectivity, privacy, and scalability in new and unique ways.
- This whitepaper is a vision piece for the evolution of the Chainlink Network over time. More focused and technically-oriented papers may be released as new features and approaches evolve.
Applicability
- The advantages provided by Chainlink DONs are far-reaching for the blockchain ecosystem, as well as for existing Web 2.0 systems. Specific sectors of the smart contract ecosystem that may realize significant positive impact from expanded oracle infrastructure include DeFi, insurance, NFTs, gaming, and decentralized identity.
- With off-chain computation, developers will be able to build hybrid smart contracts that combine the security and immutability properties of blockchain networks with the expressiveness and flexibility of off-chain web services.
- With highly scalable DONs servicing blockchains and layer-2 networks, developers will be able to build advanced smart contracts that support the transaction throughput and low fees required for mass adoption of decentralized applications.
- With extended connectivity, smart contract developers gain access to more decentralized data feeds that update on a more frequent basis, allowing for more advanced DeFi applications which expand beyond on-chain coded logic.
- With privacy-preserving smart contracts, premium data providers can monetize their proprietary datasets and enterprises can maintain confidentiality of user data and trade agreements, all while leveraging the advantages of blockchain-based automation and security.