Chainlink Functions: Bridging the Web2 / Web3 Gap

Chainlink Labs, the team behind the popular decentralized oracle network, is in the process of releasing a new software toolkit called “Chainlink Functions”.

Described as a self-service software platform, Chainlink Functions is designed to connect blockchain applications (“dApps”) to Web2 applications. Simply put, Functions is software designed to help bridge Web2 to Web3.

This article explores Chainlink, Chainlink Functions, and why this new development could be a major catalyst for the larger crypto industry.

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Understanding Chainlink

Having an understanding of Chainlink is key to understanding Functions.

Chainlink isn’t a blockchain. Rather, it’s a decentralized oracle network that relays information between the real world and blockchain dApps.

dApps are powered by smart contracts. Smart contracts, the dApps that house them, and the blockchains that house the dApps, all operate in self-contained networks, cut off from other blockchains and the rest of the internet. And this is a problem.

Smart contracts are self-executing agreements between two or more parties. Thus, a smart contract’s execution is contingent upon the outcome of an external, real world event. So for smart contracts to have any utility at all, they need a reliable data delivery system between them and the real world events that they’re contingent upon.

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Chainlink is that data delivery system. Chainlink’s decentralized network of computer programs operate as communication bridges (“oracles”) between blockchain smart contracts and other real world events

The most common use-case for Chainlink is the fetching of pricing data for cryptos, fiat, stocks, and derivatives. These “Chainlink Price Feeds” are why Chainlink has become critical infrastructure for decentralized finance.

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An Example of Chainlink Price Feeds

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Alice, using a popular decentralized exchange (dApp) on Ethereum, enters into a long bet on a bitcoin futures contract with set stop loss and take profit positions. The dApp uses Chainlink’s decentralized network of oracles to each independently fetch external data with regards to BTC’s spot price. Chainlink’s network continually aggregates the multiple sources of data, verifies it, and feeds it to the smart contract controlling Alice’s bet. Once Chainlink sends over a price that happens to hit Alice’s stop loss or take profit position, the smart contract automatically executes the trade.

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However, Chainlink has struggled with creating a system that’s generally capable of fetching data other than pricing data. Infrastructure and development requirements have just been too prohibitive. But of course, the use-case for smart contracts is much, much wider than mere pricing data.

And this is where Chainlink Functions comes into the picture.

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Understanding Functions

Chainlink Functions is a software platform that allows developers to more easily connect their smart contracts to a much wider set of real world data. Functions can connect smart contracts with nearly any external API, including mobile applications, servers, websites, and popular social media platforms.

A technical description of Function’s mechanics is beyond the scope of this article. But at a high level, Functions is a toolkit that simplifies the development process of getting accurate data from the broader internet to blockchain smart contracts.

Or in other words, Functions is a bridge between Web2 and Web3.

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Why It Matters

The potential ramifications of Functions are staggering.

Fundamentally, Web2 is a collection of centralized communication protocols (e.g. Facebook) that have done a great job at onboarding 3 billion users. And Web3 is a collection of decentralized communication protocols (e.g. bitcoin) that have done a great job at constructing a transparent and open monetary system, resistant from authoritarianism.

But the big conundrum for the crypto industry has always been how to seamlessly onboard Web2’s billions of users to Web3.

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An Example of Functions

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Alice, a video game content creator, enters into an agreement with a popular streaming service to be paid per views via an Etheruem-based smart contract. With Function, Chainlink oracles continually fetch the viewership data of Alice’s channel, verify it, and deliver it to a smart contract. The smart contract instantly pays stablecoins to Alice whenever a certain number of views is reached.

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Chainlink Labs believes that Functions is one of the major solutions. A solution so convenient, users might never need to leave the convenience of their Web2 platforms in order to enjoy the security benefits of Web3 money.

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Final Thoughts

Functions is currently in beta on the Ethereum and Polygon testnets. It’s not clear when the toolkit might be officially released to the broader developer community.

Note that this article does not provide a comprehensive overview of Chainlink or Functions. Rather, it offers a high-level perspective about the purpose of these systems, as well as the potential positive consequences that Functions might have on the larger crypto industry. Readers may have questions as to why Chainlink operates the way it does (e.g. Why multiple oracles instead of one? How does the network keep the oracles honest? How is all this paid for?). The author recommends readers spend some time researching Chainlink. It’s time well-spent.

And do keep an eye on Chainlink Functions, and related developments, as the platform moves from testing to official release. This innovation looks very interesting, to say the least.