According to the Smartcontract.com (creator of Chainlink)’s co-founder Sergey Nazarov, DECO, is an improvement on how to utilize HTTPS/TLS, for data transmission across the internet, developed by Dr. Ari Juels, the former Chief Scientist of RSA, one of the world’s largest security companies. Juels previously formalized Proof of Work, which is now used to secure the more than $300B in cryptocurrency stored across Bitcoin, Ethereum and thousands of other cryptocurrencies.
While initial reactions to this announcement have focused on its impact to decentralized finance (an area that Chainlink is best known for), the repercussions of this transaction are far broader than this narrow space and could fundamentally accelerate the adoption of blockchain technology by corporates.
I sat down with Nazarov to understand the significance of the DECO acquisition and what this means for adoption outside of DeFi.
First De-Fi Then The World?
Chainlink’s network purpose model is ultimately about enabling smart contracts to securely access external data sources — or oracles as it is known in blockchain terminology — in a decentralized manner, while ensuring that the information can be trusted and has not been tampered with.
While smart contracts have enormous potential with a broad range of uses, it has been in DeFiwhere they have had an overwhelming level of traction. Today over eight billion dollars is locked up in smart contracts in DeFi; much of it using Chainlink’s technology as the information backbone to provide investors and their algorithms with token information such as price, demand, supply and collateral levels.
While DeFi has been on a tear recently (the entire space has grown up 30% since July 2020 alone), it still represents a relatively small asset class in comparison to traditional financial markets. Furthermore, it is one that is predominantly isolated from real world of physical goods and services. While there is nothing inherently wrong with DeFi, that public blockchains’ primary usage today is to enable cryptocurrency investors to speculate on the price of other tokens represents something of a disservice to what smart contracts are actually capable of doing.
In other words, DeFi is the tip of the iceberg for smart contracts’ capabilities.
Underneath the water line lies the vast potential of public of blockchains which could eventually represent a “world computer’; ubiquitous, globally connected and decentralized, automating every aspect of our lives using data delivered through high speed networks such as 5G; for instance, through blockchain, satellites can beam real-time road usage to autonomous vehicles and weather stations can send wind and rain reports in North Dakota that can be used to automatically price automated weather crop insurance contracts for farmers.
So why have we only seen use cases in DeFi come to fruition? For Nazarov, he believes it is because the information that can be reliably and verifiably captured and transmitted in a tamperproof way today with today’s technology has tended to be in the blockchain realm.
Information about tokens, especially where that information already resides on the blockchain, is far more readily available, trustworthy, secure and straightforward to verify than from data sourced from the real world.
After all, information in the physical realm tends not to already be on a blockchain, so there are fewer mathematical guarantees that information, say, sourced from a weather station has not been tampered with, than data from a coin contract which is inherently backed by mathematical “proofs.”
Nazarov goes on to explain some of the fundamental challenges of bridging between information sourced from real physical world and delivering it to a smart contract in such a way that the data can be proven to have come from the source that it pertains to have originated from and has not been tampered along the way. It turns out that it’s not a trivial thing to do.
Our interview time is short, but I’m determined to fully understand the problem space and how Chainlink and DECO intends to solve it. Nazarov, somewhat surprised to be speaking with a journalist with a computer science background, gladly obliges.
He switches gears from a marketing narrative to one where he attempts to squeeze in a computer science academia presentation into the remaining fifteen minutes of our call, launching into a monologue about aspects such as homomorphic…