Is Chainlink a Good Investment? Pros and Cons Explained (2024)

Chainlink is a revolutionary blockchain project that has provided excellent returns over the past few years by successfully solving the oracle problem. Some believe that Chainlink is a blue chip due to being highly competitive in its niche sector – decentralized oracles – and having the capacity to tackle use cases beyond the crypto market.

In this article, I’ll guide you through the grand oracle network and explain everything you need to know before investing in Chainlink.

What Is Chainlink?

Chainlink is a blockchain protocol operating a decentralized oracle network (DON) that seeks to bridge the gap between on-chain and off-chain systems. The project accomplishes this by creating oracles that connect to various blockchains via API and deliver real-time price data.

Right now, Chainlink powers various DeFi (decentralized finance) ecosystems, delivering cross-chain communication and reliable price data to various protocols. If I want to trade tokens on a decentralized exchange, the token’s price will likely be communicated to the platform by one of Chainlink’s price oracles.

Chainlink currently only bridges the gap between blockchains. However, the project’s long-term goal is to connect the blockchain industry to legacy finance as well. This might include banks wanting to communicate with the permissioned blockchains of other banks to send CBDCs – for which they can use Chainlink oracles to reliably transfer data.

The aforementioned bank might send data such as:

• Client identities
• Bank account holdings
• Transaction data
• Account contracts

Or maybe the bank wants to allow clients to deploy their fiat capital to an Ethereum dApp. The bank will need Chainlink to source Ether’s price data so that customers can swap their fiat at an accurate conversion rate.

Chainlink is a digital highway on the blockchain whose goal is to connect financial institutions with crypto protocols. The project’s main utility is reporting data and ensuring that it’s accurate and reliable.

Reasons to Invest in Chainlink

Some of the things we see in crypto today wouldn’t be possible if it wasn’t for Chainlink. If you want to know whether you should invest in Chainlink, read the section below to discover the top 5 reasons to buy LINK.

1. Great Fundamentals

Chainlink has one of the best fundamentals in the whole crypto market. It is led by a reputable and ingenious team led by Sergey Nazarov, it has a clear roadmap with realistic goals, and delivers a seamless way to connect ori integrate any blockchain via APIs.

Chainlink is also an already established oracle network used by some of the most famous DeFi protocols. It is used by AAVE, Synthetic, Compound, Paxos, Nexus Mutual, ENS, and many others.

The project features several use cases in areas such as:

• DeFi
• Enterprise
• Insurance
• NFT & Gaming
• Social Impact
• Climate Markets

Chainlink is blockchain agnostic, meaning that it works with any blockchain network. This allows the project to leverage its powerful technology to bring data to all kinds of entities and market participants while ensuring that it is accurate, timely, and not corrupt.

2. Staking LINK

Chainlink’s long-awaited staking platform is scheduled to launch sometime next year. The launch will mark a new chapter in the LINK economy, enabling users to secure the Chainlink network while also supporting oracle nodes.

You need to understand the core mechanics of reporting data via DON’s before you can grasp the importance behind staking. A Chainlink oracle node is an entity joined by multiple participants who report data, such as a token’s price.

To regulate the node and ensure that everyone acts in good faith, the entity requesting the data can request node providers to stake LINK. What this does is ensure that node providers report accurate data and do so in a timely fashion. And if someone were to maliciously report bad data, the network would punish him by slashing his tokens.

Such an ecosystem, bolstered by staking, ensures the cryptoeconomic security and user assurances of Chainlink services. Staking is both a powerful incentive, as well as a penalty system, that helps transfer data.

Stalking also gives investors a reason to hold onto their LINK. Instead of having tokens sit in a wallet, investors can earn passive income by staking. Staking rewards are projected to reach an annualized rate of up to 5% in the beginning.

3. Niche Market

Chainlink is part of a very niche market of decentralized oracles. The project does not compete with any of the big players such as Ethereum, Bitcoin or Solana. Instead, Chainlink serves as a third layer of blockchain technology that assists the aforementioned projects.

Chainlink’s only notable rival is Band Protocol – another cross-chain oracle data provider. However, BAND comes nowhere close to Chainlink neither in terms of integrations nor technology. The project almost holds a monopoly over the oracle market because no one does it better than Chainlink.

In this sense, the sky's the limit for Chainlink. You don’t have to worry about a Chainlink-killer – a common trope in the smart contract world – because there simply is none. Chainlink’s performance in the market depends exclusively on how it manages to scale with demand.

4. Blockchain Adoption

Many crypto enthusiasts believe that blockchain technology represents the future of finance. There is great speculation about governments and banks digitizing existing financial infrastructure and introducing some forms of blockchain technology to the masses. You can see this especially with talks of CBDCs such as a digital dollar and digital yen.

If blockchains become the norm, Chainlink will definitely play a part in it. And you can only imagine the demand that Chainlink will face if blockchains become mainstream. The future blockchain economy could be fully supported by the project by using Chainlink nodes to transfer data between enterprise companies or banks and blockchain networks.

The team hints at such a large-scale adoption and we already see Chainlink creating nodes for existing enterprise companies. For example, developers and data providers can launch a Chainlink node on AWS and provide data services to any blockchain network.

5. Utility

Chainlink is foremost a utility project. The protocol’s role is to develop software that allows data providers to communicate with blockchains and blockchain protocols. Entities paying for Chainlink’s services pay fees, and the fees go back into the project’s ecosystem. And the more demand, the more money flows into Chainlink.

From the perspective of the project, Chainlink as a network will gain more value. From the perspective of stakers, they will receive higher rewards from staking. This is a win-win situation because a valuable network will attract more stakers, and therefore, more investors.

You’re betting on Chainlink’s future value as a network by investing. And the value of your portfolio will be directly tied to how the project performs, scales, and manages to attract demand. There are a lot of reasons to invest in Chainlink if you are bullish on the future of blockchain technology and the project’s role in that future.

Disadvantages of Investing in Chainlink

While there are more than enough good reasons to buy Chainlink, there are also a few reasons why you might want to abstain from investing.

First of all, token has no utility in the Chainlink ecosystem for now. The token is not used in any way and all of its value is gained from speculative reasons alone. This is due to the fact that Chainlink’s long-awaited staking platform is not online. Although the project announced staking for next year, it wouldn’t be a surprise if there was a delay.

You’re investing in a speculative token as long as staking is not introduced yet. The token might only gain fundamental value after the fact. And then again, Chainlink’s success as a project depends entirely on its utility. The project might not have a bright future if the institutional-great demand we all expect isn’t here yet.

Then again there’s the possibility that enterprises don’t adopt Chainlink but use a private solution of its own. This possibility would heavily damage the project’s long-term growth and would heavily limit it to the cryptocurrency market and its users.

None of the aforementioned possibilities are set in stone. But they do represent a potential risk factor that has a tangible impact on your investments.

Should You Buy Chainlink?

Chainlink is the first blockchain protocol to solve the oracle problem. By creating decentralized oracles and price nodes that accurately report data to on-chain protocols, DeFi dApps have the capability to provide lending, trading, and other financial services.

The project plans to introduce staking in the future in order to completely revamp its tokenomics. Doing so will create incentives for node operators and token holders, while facilitating a punishment system in which bad actors lose money for malicious behavior.

Chainlink will be the de facto industry standard for middleware software connecting enterprises and institutions to the blockchain economy – if the stars align. But even if these bullish claims don’t come to fruition, the project will still have a valuable and important role in regulating crypto data and supporting the DeFi ecosystem in its quest to decentralize financial instruments.

If you want to learn more about Chainlink and other decentralized oracles, I recommend reading the following articles:

• Who Is Sergey Nazarov?
• What are Decentralized Oracles?
• What is Band Protocol?