Bitcoin was one of the first protocols to use a revolutionary technology called blockchain. The Bitcoin whitepaper was released by a pseudonymous person called Satoshi Nakamoto which outlined how bitcoin could be used to make peer-to-peer transactions in a decentralized network that is powered by cryptography.

A few years later a man released a paper describing a new protocol called Ethereum which used the same blockchain infrastructure as Bitcoin but added more things on it. People can use it to make entirely decentralized applications, decentralized organizations, build smart contracts and engage in agreements without a third-party intermediary or centralized governing.

Their idea was to take the same pieces that made Bitcoin great and add smart contracts to it. You can think of a blockchain as a decentralized database and with Ethereum it also can do computation in a decentralized manner.

You can think of a blockchain as a decentralized database or distributed database and with Ethereum it also can do computation in a decentralized manner.

Ethereum is by far the most popular and most used blockchain or smart contract protocol. Learning how to write smart contracts on the Ethereum blockchain can help you understand how blockchains work in depth, and the knowledge you learnt isn’t only gonna be applied on the Ethereum blockchain, you can apply it to other blockchains as well because the concepts are the same.

This is an idea for a new version of the World Wide Web based on the blockchain (can connect and interact with the blockchain), which incorporates concepts including decentralization and token-based economics.

A Smart Contract is a program that runs on the Ethereum blockchain. It's a collection of code (its functions) and data (its state, i.e. variables) that resides at a specific address on the Ethereum blockchain. They are similar to regular traditional contracts that people make between each other but they are written in code (you can see them as programs to be executed later) and executed by the decentralized blockchain network, instead of being written down using pen and executed by the parties involved.

Smart contract is one of the main differentiators between the Ethereum protocol and the Bitcoin protocol. Technically Bitcoin does also have smart contracts however they don't have the full range of capabilities as Ethereum. This is actually an intentional move by the Bitcoin developers; they view the Bitcoin network only as an asset whereas the Ethereum developers view that network as an asset and also a utility for people to build these smart contracts.

Smart contracts are amazing but they come with a natural fatal flaw, which is known as the oracle problem. If you want these smart contracts to actually be digital agreements then they need some way to interact with the real world like getting real world data.

Smart contracts are unable to connect with external systems, data feeds, APIs, existing payment systems or any other off-chain resources on their own. That is because blockchain is a deterministic system, you can say ‘1 + 1 = 2’ and every other node (these nodes are helping us to execute these smart contract programs, they are also known as miners or validators which will be fully explained later) on the network can easily verify this. However a blockchain can't easily say ‘Yo, let's all grab the same random number’ because each node is going to get a different random number, they also can't say ‘hey, let's make an API call’, because if different nodes call the API at a different time they could potentially get different results.

And if another node tries to replay these transactions by calling these APIs again, maybe 10 years in the future there's a good chance that the API is going to be depreciated or they could be hacked or they could be malicious etc.

This is where oracles come into play, they are devices that bring data into a blockchain or execute some type of computation outside of the blockchain.

But that’s not enough, our blockchains and smart contracts are decentralized applications and in order for them to stay decentralized, they would also need to get their data and do their external computation in a decentralized manner. Your on-chain logic will be decentralized on the blockchain but you'll also need your off-chain data and external computation decentralized as well.

If the oracle is centralized, the network will suffer from the risk of having a centralized point of failure. We've done all this work to make our decentralized computation on chains but we ruin all the decentrality by having a single point of failure. One of the whole purposes of blockchain is so that not a single entity can flip a switch and restrict our freedom to interact. We need to get data from many different decentralized sources or do any type of computation in a decentralized manner. This is where Chainlink (we will discuss that later) really shines.

Combining these on-chain contracts and these off-chain data and external computation builds what's called hybrid smart contracts, a large majority of DeFi (Decentralized Finance) applications today are hybrid smart contracts.

Chainlink is the most popular and powerful decentralized blockchain oracle network built on Ethereum. The network is intended to be used to facilitate the transfer of tamper-proof data from off-chain sources to on-chain smart contracts.

Chainlink is an incredibly powerful oracle network because it allows us to get data, get randomness, do some type of computations or customize our smart contracts in any way we want by making API calls to Chainlink’s smart contracts on the blockchain (more about that later).

Chainlink is being run by independent and sybil resistant node operators, they focus on data validation and come to consensus about individual off-chain values to make them reliable enough to trigger contracts. Node operators are security reviewed, can provide a proven performance history and are high quality and highly sybil resistant.

Currently one of the most popular features of Chainlink is their data feeds, which provides currency exchange rate data from the off-chain world to the blockchain.

If you visit their page, you will see a number of decentralized networks, they represent different blockchains.

If you click on one of them, you will see a bunch of contracts deployed by Chainlink on the specific blockchain to provide other contracts the data feeds.

If you click on one of the data feeds, it shows a number of decentralized oracles that return data for this particular data feed. The value of this data feed is calculated by summing all the responses from these oracles and taking the average.

These decentralized oracles (decentralized networks) help bring this data onto the chain, that allows users to use this common good and it will be cheaper, more secure and efficient than anybody running their own centralized oracle.

You can check out Chainlink’s documentation for more information. And don’t worry if not everything is making sense right now, I assure you these will all make sense after I teach you how to use Chainlink later in this course. Right now the only thing you need to keep in mind is that we need a decentralized way to bring data from the outside world to the blockchain and oracles is our solution.