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Externally Connected Smart Contracts Are Growing Bitcoin Adoption

smart contracts enhancing bitcoin adoption

March 5, 2021 | 

1043 Views | 

JOHN K MWANIKI | 

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In the past 12 months, the demand for bitcoin has grown by 1000%. Despite being a volatile investment, this cryptocurrency continues to exhibit an upward trend. As a result, more traders and investors continue supporting this digital currency. Chainlink is one of the most crucial supporters of bitcoin and other cryptocurrencies.

Thanks to its advanced technology, Chainlink allows interoperability between different blockchains. In the past, major blockchain networks have worked in isolation. From Bitcoin, Ripple, to Ethereum, there was no way to connect them together. Users could also not access real-world data outside the blockchain network. 

Chainlink allows different chains to interact with each other. It also allows them to connect to other external data sources. This article discusses how Chainlink's smart contracts aid in growing bitcoin adoption

How does Chainlink contribute to enhancing bitcoin adoption?

Launched in June 2017 in San Francisco, Chainlink is a decentralized oracle network. The platform provides secure information to and from blockchains. It connects smart contracts from different blockchains. Thus, replacing the need for traditional legal agreements. Through its consensus protocols, this platform advances smart contracts' applicability.

Smart contracts refer to pre-specified agreements on a blockchain system. Such contracts work under a cryptographic code. Their execution occurs upon fulfilling a set of conditions. It is after such fulfillment that allows the other party in the contract to alter the code. As a result, smart contracts bind all parties to the agreement. One party cannot execute it if the other does not fulfill the pre-set conditions. 

According to Chainlink developers, there are several shortcomings in standard contracts. The major one is that they do not interact with external systems. Users cannot fetch information from external sources. Such external sources include traditional banking systems and data feeds. In turn, they implemented the use of the Oracle Network.

The oracle network acts as an intermediary software. It translates real data into smart contracts on the blockchain and vice versa. Chainlink does this using its oracles, decentralized nodes network, and extra secure hardware. Its consensus protocol offers data from off-chain sources to on-chain smart contracts.

Bitcoin is a globally recognized cryptocurrency. Many people often use it as a credible alternative to fiat currency. Over the years, bitcoin's demand continues to increase. Investors use it as settlement or collateral with smart contract-based decentralized finance (DeFi). 

Let us look at some of the ways that Chainlink's smart contracts aid in easy bitcoin adoption.

1. By powering price feeds for on-chain bitcoin financial products

From centralized exchanges to decentralized protocols, there are plenty of bitcoin-based financial products. Some of them include synthetic assets, futures, automated trading strategies, and options. All these products need BTC price feeds to determine their financial outcome. 

Likewise, there is a high demand for exotic derivative products. These products use other bitcoin datasets. Such datasets include Bitcoin's total market cap, BTC dominance, and current hash rate.

Chainlink allows Bitcoin-based financial products to access the most decentralized BTC price feed. As a result, this acts as a tamper-resistant circuit breaker. It is also a form of triggering their execution. Other oracle networks can also use the BTC/USD network. This aids in generating new price feeds for BTC against other cryptos and fiat currencies.

Furthermore, Chainlink offers more data on the Bitcoin blockchain. This services the demand for more advanced bitcoin derivative products. Chainlink's supporting a wide array of Bitcoin financial products. 

Thus, investors can control their bitcoin exposure for both on-chain and off-chain products. In turn, it provides more room for increased liquidity and demand.

2. Through Chainlink's Proof of Reserve reference data feeds

Chainlink aids in growing bitcoin adoption via its Proof of Reserve data feeds. These data feeds consist of decentralized oracle networks. These oracles update the current on-chain collateralization of wrapped bitcoin. 

Experts claim that there is $2 billion worth of wrapped bitcoin on the Ethereum network. They track over 90% of all wrapped bitcoin, including Ren Protocol's renBTC and BitGo's WBTC.

In turn, DeFi applications can independently audit these token reserves on-demand. This protects users from black swan events and potential fractional reserve activities. These feeds guarantee enhanced transparency and security to DeFi applications using wrapped bitcoin.

3. by providing oracle services and data feeds to smart contracts secured by bitcoin

Chainlink also extends its smart contracts to networks secured by bitcoin. Its data feeds and oracle services offer advanced decentralized applications. These applications need reliable and secure access to off-chain events, data, and payments. For example, 

Chainlink provides its smart contracts on the Blockstack and RSK blockchains. They are both secured by bitcoin. Chainlink's external data delivery increases bitcoin's value. It enhances its utility as a decentralized settlement layer, hence, growing bitcoin adoption.

4. Facilitates triggering and tracking bitcoin transactions from any blockchain

Chainlink's smart contracts contribute to the growing bitcoin adoption by triggering bitcoin payments. With its nodes' help, Chainlink sets off bitcoin payments. This is possible through holding funds escrowed within a Trusted Execution Environment. 

Like the Town Crier, such environments must hold the private key. As a result, even the node operator cannot see the requested computation or decipher the key. 

Triggering bitcoin payments via Chainlink is also possible through several oracle networks. These networks form a multi-signature transaction. In such transactions, one oracle network cannot prevent or manipulate the transaction.

Chainlink tracks bitcoin payments through smart contracts using its modular external adapter. The adapter allows Chainlink nodes to deliver bitcoin's current information to other blockchains. 

As a result, smart contracts can process and confirm cross-chain payments. Thus, enabling a wide variety of bitcoin-enabled services. In turn, Chainlink increases bitcoin's use as a global assets and financial settlement.

Conclusion

As mentioned above, Chainlink adds value to bitcoin and bitcoin-enabled smart contracts. Not only does it fuel bitcoin adoption, but it also influences the adoption of other cryptocurrencies. It also pushes for the use of smart contracts. 

Through Chainlink's oracles, bitcoin-enabled smart contracts can fetch on-chain and off-chain information. They can do so from other blockchains or from various external sources. The platform ensures the safety, reliability, and speed of such interoperability. 

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