Welcome back to Chain reactiona podcast that interviews crypto newsmakers to better understand the technology behind the hype and the people working towards a decentralized future.
“Oracle networks are really the thing that puts the word ‘smart’ in smart contracts,” Nazarov said. “Smart contracts by themselves don’t know what time it is; they do not have access to an external system […] except what is in a blockchain.”
Before starting Chainlink, Nazarov co-founded four other companies, the most recent of which was SmartContract, which also focuses on smart contracts.
Chainlink is also known as a web3 service platform that connects people, businesses and data to the world of web3. And for good reason: the platform has enabled more than $7 trillion in transaction volume across DeFi, gaming, NFTs, and other major industries.
When it launched in 2017, the total value locked (TVL) in the entirety of DeFi was “well below $100 million,” Nazarov said. By the end of 2021, that number had grown to nearly $200 billion, though it has since fallen to $47 billion, according to DeFiLlama facts.
“When an oracle network goes live on a particular chain and provides data to it, the total value of that chain, locked into advanced applications, such as advanced gaming applications or DeFi applications, skyrockets,” Nazarov said. “And ‘shoot up’ doesn’t mean doubling; it means it [grows] more than 100 times.”
For blockchains to create sophisticated applications, they need sophisticated inputs and outputs, Nazarov said, pointing to how Uber couldn’t exist without other systems that handle much of the workload and problems it encounters. “Without those APIs, you can’t build an advanced application,” he added.
Web 2.0 vs web3
For Nazarov, the Web 2.0 world most people use is “not guaranteed in any meaningful way.”
What does that mean? Well, at any time an entity like Silicon Valley Bank can “change the rules and then you have a difficult situation,” he explained.
Until the collapse of the SVB, many people thought banks were predetermined, Nazarov said. “They felt that banks would always behave in a predictable, repetitive way that they understood. But now I think people are realizing that banks are probabilistic and there’s a chance they won’t behave the way people expect because [of] a large number of people-based decisions and legal promises that are not really guaranteed.”
So how can the world become more reliable and safe?
By means of technological or cryptographic guarantees in web3, Nazarov believes. “It is a parallel system of contracts. The Web 2 world defines events in digital form […] but ultimately those promises are only backed by the justice system and people’s choice to keep those promises.”
In the web3 world that uses smart contracts, there is no capacity for human choice or the legal system, Nazarov noted. “There is only a technically enforced system of contracts.”
In addition to a number of topics related to smart contracts, technological guarantees, cross-chain interoperability and Nazarov’s long-term vision for Chainlink, we discussed:
- Unexpected use cases for smart contracts
- How traditional companies can symbolize assets
- AI and blockchain technology
- CCIP updates