Although Chainlink relies on Ethereum, both have performed remarkably well, even during a bullish market. Will LINK surpass ETH in the long run?
Chainlink and Ethereum are different cryptocurrencies with entirely different goals in the cryptocurrency space. While Chainlink utilizes Oracle networks to transfer secure and tamperproof data, Ethereum acts as smart contracts token.
However, Chainlink is built on the Ethereum blockchain. It means Ethereum has a higher market capitalization as it supports several decentralized applications and has more utility than Chainlink.
Since Ethereum was launched way before Chainlink, it has gained tremendous popularity and value over the years. It means, Chainlink, built on Ethereum, has great potential to experience growth now and in the future.
Understand Chainlink and Ethereum
Chainlink is a decentralized network of oracles that connects smart contracts to data from the real world. Chainlink’s oracles act as intermediaries that translate data to smart contracts from real-world events. It provides data from off-chain sources to launch smart contracts through oracles. With additional secure hardware, Chainlink eliminates reliability issues that may take place if it uses only one centralized source.
Ethereum is a decentralized blockchain network that creates a peer-to-peer (P2P) network to execute and verify application codes known as smart contracts securely. These smart contracts allow users to transact without any central authority.
Challenges Faced by Ethereum
- Scalability Issues: Ethereum’s scalability issues are due to its special design, as the protocol favors security and decentralization over scalability. Ethereum uses a PoW (proof-of-work) consensus algorithm, allowing nodes to accept transactions on the blockchain network. While this is excellent for security and decentralization, efficiency is compromised, a major drawback of this protocol.
- Reliability and Security: Ethereum blockchain also has several security and reliability vulnerabilities, which can lead to massive losses. One of the main challenges with Ethereum is the potential security risks involved with this protocol. The proof-of-stake consensus algorithm is fundamentally distinctive from Ethereum’ss proof-of-work mechanism that involves new risks of staking pool centralization, validator collusion, and network attacks. These risks must be addressed to ensure the stability, reliability, and security of the Ethereum network.
Strengths of Chainlink
- Specialized Functionality: Chainlink’s specialized functionality allows smart contracts to connect to APIs and get verifiable and decentralized consensus on the outcome of any code users want to run. It is one of the strengths of Chainlink as it is extremely powerful compared to traditional smart contracts, running on blockchains that cannot access data easily and carrying out complex computations on-chain can be quite expensive.
- Interoperability: Chainlink’s CCIP or cross-chain interoperability protocol provides cross-chain messages, relaying services, and cross-chain token bridges. These advancements in Chainlink’s interoperability create a kind of cross-chain hybrid smart contracts that allow blockchains to communicate with one another.
- Mitigating Oracle Problem: The oracle problem is the limitation of a blockchain network to connect to an outside platform to realize mass adoption. Chainlink’s utility token, LINK, acts as a trust-minimized middleware utility token solution to this oracle problem by offering reliable tamperproof solutions for a complex smart contract on any blockchain. Chainlink helps connect blockchains to the traditional financial world, including financial agreements, payment gateways, insurance, etc.
Ethereum’s Continued Dominance
Network Effects: According to the reports published by the Bank of America, the smart contract-enabled platform of Ethereum enjoys a first-mover advantage in the decentralized finance (DeFi) space. Many software developers have joined the platform, which has resulted in network effects as the number of digital users and decentralized applications (dApps) grew.
Network effects have become a powerful driver of adoption and growth for Ethereum platforms and technologies. In general, the network effect means that Ethereum’s value rises as more and more people use it. A larger user base leads to higher trading volume and liquidity, ultimately increasing Ethereum utilization, acceptance, and adoption.
- Ethereum 2.0 Upgrade: Eth2, or Ethereum 2.0, has been an excellent upgrade to the Ethereum network. It is also known as Serenity, which aims to enhance the efficiency, scalability, and speed of the Ethereum blockchain network to avoid bottlenecks and simultaneously process additional transactions.
Ethereum 2.0 has been launched in multiple phases since 2020. The first upgrade, the Beacon Chain, introduced native staking on the Ethereum B=blockchain. The second phase, the Merge, merged the Beacon Chain with ETH mainnet, and the final phase, called shard chains, spread scaling operations across 64 additional chains.
Potential of Chainlink to Surpass Ethereum
Chainlink V/s Ethereum, who holds greeted potential? In terms of network, technology, and historical price performance, both have shown their strengths and weaknesses. Thus, whether Chainlink will surpass Ethereum or not is quite difficult to answer.
However, let’s find out a few of the potential strengths of Chainlink that can help it surpass ETH!
- Addressing Critical Needs: Chainlink uses a consensus algorithm called LINK token to ensure the reliability and security of blockchain oracle. It uses top-notch security measures to protect client information and funds, including two-factor authentication, SSL encryption protocols, and cold storage. Chainlink has also introduced different scaling solutions, including off-chain computation, state channels, and sharding. It is something that Ethereum is still struggling with, as high transaction fees and network congestion have become significant issues on the Ethereum blockchain network.
- Niche Domination: Chainlink, a decentralized network of oracles, is important for smoothly operating decentralized applications. Chainlink oracles are typically off-chain sensors that transfer data on the blockchain and resolve the interoperability problem.
- Coexistence and Collaboration: Chainlink and Ethereum are different yet interconnected. Chainlink is a decentralized oracle network built on Ethereum, and it is intended to facilitate tamperproof data transferring from off-chain sources to smart contracts. Both have their set of technological differences, strengths and weaknesses, use cases, adoption, market performance, trends, and community support. Although they are individually independent digital assets, Ethereum’s growth and popularity in market capitalization will lead to greater growth and wider acceptance of Chainlink’s LINK tokens, leading to further bullishness in the Chainlink price.
Both Chainlink and Ethereum have performed remarkably and are promising crypto tokens with immense growth potential. However, the investment potential of cryptocurrencies may vary depending on their use cases and adoption. While Chainlink is a better investment for users looking for crypto to solve the problem of reliability and smart contracts, Ethereum is a better choice for those looking for a blockchain platform that allows the development of several decentralized applications.
However, the ultimate choice between Chainlink and Ethereum depends on the users’ investment goals and personal preferences. It is important to conduct extensive research and analysis before choosing a better investment option.