Is Chainlink a Long-Term Buy?

Chainlink (LINK -20.23%) has been a rare bright spot in an otherwise dreary crypto market as of late, with a 28% gain over the past week and a 6.5% gain over the past month. But the $4 billion market cap cryptocurrency is still down a long way from its all-time high of more than $20 billion last May and has fallen about 55% year to date.

With recent momentum and some exciting new developments ahead, is Chainlink a buy for long-term investors? 

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What is Chainlink?

The aptly named Chainlink is an oracle chain that essentially links blockchains to the outside world by serving as middleware between smart contract platforms and external data sources by providing reliable, real-world information to smart contract platforms. For example, Chainlink can provide a smart contract with data and results such as prices from financial markets, weather, and even sports results.

Why is Chainlink valuable? 

As blockchain technology becomes more widely adopted by global businesses, a platform like Chainlink will become more important and valuable. For example, imagine a smart contract that facilitates a wager on a baseball game. Chainlink can be utilized to provide the score of this game to the smart contract platform and validate it to ensure that the smart contract is executed properly, which is important in a crypto industry that eschews intermediaries.

Chainlink could also be used to validate the prices of stocks and other cryptocurrencies in order to facilitate options and futures trading in the crypto derivatives market. Stablecoins that are pegged to the price of real-world assets like gold or oil can use Chainlink to verify the price of these commodities. Chainlink could be used by companies to provide data from Internet of Things sensors to smart contract platforms and to provide weather information to the insurance industry for applications like crop and flood insurance. There is a limitless array of use cases here. 

Major changes to Chainlink 

The long-term value of Chainlink has been bolstered by some recently announced developments on the horizon, which will constitute major changes to the Chainlink network. The company’s developers laid out a new roadmap for the company and announced that staking will be coming to the Chainlink network in the second half of 2022.

As a proof of stake cryptocurrency, staking LINK tokens will incentivize more Chainlink holders to participate in the network and earn rewards by committing their tokens to staking, which will help to secure and enhance the network. Chainlink holders will benefit by earning passive income via fees, and over time, as Chainlink becomes more widely adopted, the fees generated by the network should grow and in turn increase the rewards for stakers.

The new roadmap also introduces a new feature called proof of reserve (POR), which will allow for the automated audit of a company or fund’s cryptocurrency holdings, which should help to boost transparency in a market that would benefit from it after the fall of stablecoin Terra damaged trust in the crypto industry.

Is Chainlink a buy? 

As a valuable part of the crypto ecosystem providing an important service that will become more important as blockchain technology becomes increasingly integrated into the global economy, I view Chainlink as a long-term buy and hold. The introduction of staking and proof of reserve are additional short-term catalysts that could give the network a jump-start.