Chainlink Oracle Machine: A System Connecting Smart Contracts with the Outside World of Blockchain

In the field of blockchain, oracle machines are systems that accurately supply external real-world data to smart contracts. Essentially, oracle machines function as vital middleware that bridges the gap between blockchain and real-world information, serving as an indispensable infrastructure supporting the ecosystem of decentralized applications (DApps).

What is an Oracle Machine: A Blockchain Data Intermediary System

When smart contracts are executed, many require access to external data. For example, when building a crude oil futures derivative smart contract on the Ethereum network, data on the trading volume of crude oil on a specific date is needed. However, since smart contracts are limited to on-chain environments, they cannot directly access off-chain information. This is where oracle machines come into play.

Specifically, smart contracts write requests for necessary data into event logs. Then, processes operating off-chain monitor these event logs and analyze the request details. After retrieving the required data via external APIs, they broadcast transactions to send data on-chain and execute callback functions within the smart contracts. Through this series of steps, smart contracts gain access to reliable external information.

Chainlink’s Market Position and LINK Token

In the decentralized oracle machine sector within the blockchain industry, Chainlink holds the largest market share. The role of the Chainlink project is to provide real-world generated data to blockchains in the safest and most reliable manner. The project has built a virtuous ecosystem centered around the LINK token through an economic incentive mechanism.

Current LINK Token Market Data (as of January 21, 2026):

• Current Price: $12.25
• 24-Hour Change Rate: -2.14%
• 24-Hour Trading Volume: $4.32M
• Circulating Market Cap: $8.68B
• Market Share: 0.38%

Chainlink’s oracle machines are triggered by transfers of the LINK token. This token is an ERC677-based smart contract operating on the Ethereum network. The functions of oracle machines based on LINK tokens are classified into a typical request/response model.

Innovations Brought by the ERC677 Standard

transferAndCall Method Design Philosophy

The core issue with oracle machines is that users need to pay service fees to service providers (oracles). However, the standard ERC20 token specification only provides simple transfer functions, which cannot fulfill the dual requirement of paying and simultaneously requesting a service.

To address this, Chainlink proposed the ERC677 standard. This standard adds the transferAndCall method to the traditional ERC20, enabling token transfer and service request within a single transaction. When users execute transferAndCall, in addition to the normal ERC20 transfer process, it determines whether the recipient address is a smart contract (not an externally owned account). If it is a contract address, its onTokenTransfer method is automatically invoked.

This design integrates payment and function invocation, allowing the business logic of oracle machines to be implemented efficiently.

Multi-layer Security Verification

Before utilizing oracle services, users must verify whether the oracle machine is trustworthy. Chainlink’s design allows anyone to participate as an oracle service provider, and this transparency and verifiability enhance the system’s reliability.

On-Chain Request Processing Flow

Oracle Contract’s Request Acceptance Mechanism

When an oracle machine consumer pays fees using transferAndCall to request oracle services, the request destination address becomes the oracle machine’s contract address. In the Oracle contract’s onTokenTransfer method, multiple staged verifications are performed:

First, it confirms that the token transfer originates from the LINK token contract (onlyLINK modifier). This is achieved by checking if msg.sender matches the LINK token contract’s address. Next, it verifies that the provided data payload (_data) does not exceed length limits. An important check is whether the _data contains a function selector starting with “oracleRequest.”

If these security checks pass, the current Oracle contract calls the oracleRequest method via delegatecall.

Request ID Generation and Recording

Within the oracleRequest method, the following steps are executed sequentially:

A unique requestId is generated by concatenating the oracle’s requester (user) and the nonce they sent, then processing this with a hash function. The system checks the commitment mapping to ensure this requestId does not already exist, preventing duplicates.

Upon passing verification, an expiration timestamp is set, and a record is stored in the commitment mapping containing _payment, _callbackAddress, _callbackFunctionId, and expiration. The most critical step is emitting an OracleRequest event containing request data encoded in CBOR (Concise Binary Object Representation). CBOR is a lightweight, binary-encoded JSON format that enables efficient data exchange.

Off-Chain Node Response Mechanism

fulfillOracleRequest Verification and Execution

Chainlink nodes operating off-chain monitor the OracleRequest event. When detected, nodes perform several key verification steps before returning data to the blockchain.

First, they verify that the caller (msg.sender) is either the contract owner or an approved node (onlyAuthorizedNode modifier). Next, they check that the provided requestId exists in the commitment mapping and that the associated _payment, _callbackAddress, _callbackFunctionId, and expiration match previously recorded values (isValidRequest).

If these checks succeed, the request’s payable tokens are accumulated in drawableTokens, and the requestId is removed from the commitment map. Finally, it confirms whether the remaining gas is sufficient (less than MINIMUM_CONSUMER_GAS_LIMIT) to execute the callback function on the original requesting contract.

Once all verifications pass, it formally calls the callback function of the requester’s contract via call, transmitting the obtained data.

Callback Function Implementation Patterns

From the OracleRequest event, one can retrieve the callback function ID (e.g., 6A9705B4) and the corresponding method signature (e.g., chainlinkCallback(bytes32,int256)). The consumer contract that receives the data from the oracle machine implements verification functions like validateChainlinkCallback.

This verification function checks whether the requestId provided in pendingRequests actually exists and is from the corresponding oracle machine request. Upon passing, a ChainlinkFulfilled event is emitted, and further response data can be processed. The response mapping is updated, and for price oracles, the currentPrice is assigned the new data, triggering the corresponding price update process.

Implementation Patterns for Price Oracles

Aggregator Interface and Price Feeds

The above steps constitute a comprehensive process for universal oracle services. Meanwhile, Chainlink’s price oracles offer a more streamlined implementation pattern.

Each trading pair (ETH/USD, BTC/USD, etc.) has its own price feed (Aggregator or its proxy version, AggregatorProxy). This interface provides several standardized query methods.

Main Query Methods:

• decimals() – indicates the number of decimal places for the returned price data (usually 8 or 18)
• description() – returns the name of the trading pair (e.g., ETH/USD)
• version() – mainly identifies the version of the aggregator that the proxy points to
• getRoundData(_roundId) – retrieves price data based on a specific round ID
• latestRoundData() – retrieves the latest price data

Best Practices in Implementation

Most application development scenarios only require reading the latest price, which can be achieved by calling latestRoundData(). The return values include the most recent price information.

Furthermore, many applications use USD-denominated token prices as the display unit. In such cases, the precision for USD trading pairs is uniformly 8 decimal places, so differences in precision generally do not need to be considered. Even if different token pairs have varying precisions, this can be properly handled by checking decimals().

In this way, Chainlink’s oracle machines go beyond simple data mediation, providing practical and reliable financial infrastructure within the blockchain ecosystem through advanced implementation patterns like price oracles.