Blockchains are public digital ledgers organizing and storing data. But, without blockchain oracles like Band Protocol (BAND), they can't communicate with the outside world.
As you can imagine, the world outside of blockchain is, well, pretty big. Everyday real-world data like weather, events, asset prices, and much more produced over 2.5 quintillion data bytes per day in 2020 alone.
The importance of bringing off-chain data onto the blockchain can't be overstated if blockchain is ever going to have widespread utility and mainstream adoption. That's what makes Band Protocol an essential piece of blockchain infrastructure for feeding smart contracts with real-world data.
This guide to Band Protocol covers everything you need to know about BAND token along with how the data oracle works. At the very end, you'll find a quick chart comparing Band Protocol with Chainlink.
In 2019, Band Protocol was founded in Thailand by three deeply experienced computer scientists. They believed that decentralized applications, especially in decentralized finance (DeFi), would continue multiplying as more developers poured into the crypto industry.
With a strong belief in the power of decentralized apps in hand, they also recognized their main limiting factor: dApps were stranded without data.
Blockchain applications do everything on the blockchain, or on-chain. So, without a way to feed them data from the off-chain realm, the only data they can use in smart contracts is whatever happens on their particular blockchain.
Band Protocol is a decentralized network that collects off-chain data, stores it on the BandChain, then let's decentralized apps access the data on BandChain.
Here's a quick example of how this all looks in practice.
Imagine you're building a dApp for betting on sports events. To settle bets and reward the rightful winners, your smart contracts need to know the result of the events in question. That's when your smart contract queries BandChain for the results, which the network then feeds back to the contract, allowing it to reward the correct wallets accurately.
That's a slight oversimplification of what Band Protocol does. But before getting into complex blockchain data oracle uses, let's dig deeper into how Band Protocol works.
Blockchain applications face the epic dilemma of not being able to receive off-chain data natively. Without information from the outside world, dApps have minimal capabilities.
That's why blockchain oracles like Band Protocol are necessary pieces of infrastructure. Band enables blockchains to link up with off-chain data and APIs so they can get crucial information.
Let's use Mirror Protocol to understand why oracles are such game-changers.
Mirror is a platform for minting and trading synthetic assets, or synths. Synths are on-chain versions of off-chain assets like stocks and gold. Mirror uses Band Protocol to track off-chain asset prices in real-time to ensure synths trade at the correct values concerning the actual assets.
Any application's smart contracts can connect with Band for up-to-the-minute data. Since Band Protocol is built on the Cosmos SDK, it takes advantage of Cosmos' low-latency and high-throughput to keep costs low for data-hungry apps.
Seen from a high-level perspective, Band Protocol is middleware that acts like glue between blockchains and any other data source they're interacting with.
Even more exciting is the fact that Band is blockchain agnostic, meaning it works with any blockchain. Band's cross-chain compatibility originates with Cosmos, the fully interoperable blockchain hub at Band's protocol layer.
Originally, Chainlink was an Ethereum-specific oracle, so it could only serve Ethereum-based apps. Band kicked off the move toward interoperability, blending Ethereum, Polkadot, Icon, Tron, Solana, and Cosmos-based applications.
Using Band, DeFi exchanges on Ethereum can query asset prices on a Polkadot-based decentralized exchange. If you have collateral on a Solana lending market, Band empowers a Cosmos-based lender with a tool for cross-referencing your creditworthiness.
As you can see, Band's ability to work across blockchains and give them a data bridge in common is quite useful indeed.
Throughout all of this talk about data, have you wondered who provides the information BandChain serves to applications? The first concern might be that the data comes from a centralized source, but thankfully, there is no such shortcoming with Band Protocol's decentralized approach.
Band relies on a network of trusted validators who are chosen to provide data based on the size and maturity of their stake. In this case, stake refers to the amount of BAND tokens they've deposited as collateral guaranteeing their honesty.
When an app or API requests information, the selected validator sets to work by retrieving the data in the format specified by the smart contract. The data is held on BandChain, allowing the requesting smart contract, or anyone else for that matter, to pull the information.
The last point is interesting from a cost-savings perspective. Because BandChain acts as a data repository, data can be recycled for unlimited use. If specific DOT prices have already been aggregated, subsequent requests for the same data are automatically fulfilled without resorting to validators.
BAND is the native token of the Band Protocol network. It has many use cases within the network — all of which are essential.
In other words, if you're excited about Band Protocol and the necessity of data oracles, you'll love the utility of BAND token.
You can earn a decent passive income by staking BAND tokens as a validator node. However, becoming a BAND validator requires technical know-how and a large amount of BAND tokens. Only the top 100 BAND wallets qualify for becoming validators.
As a validator, you're responsible for adding new blocks to BandChain and participating in consensus. In return, you earn around 13% APY paid in BAND tokens.
If you don't have the knowledge or resources to become a Band validator, you can become a delegator instead. Anyone can be a delegator by simply delegating your BAND tokens to a validator.
As a delegator, you let the validator do the heavy lifting and collect a portion of the rewards for providing your BAND token stake. Right now, staking rewards for BAND delegators are around 11% APY.
Besides being used for staking, BAND is also a governance token. As a BAND holder, you're entitled to proposing and voting on in-network referenda. Votes are routinely held to decide on how to use the community spending pool funds.
The community spending pool is funded by 2% of BandChain block rewards. As such, the CSP's overarching goal is to support community-driven initiatives around expanding the Band ecosystem.
The inevitable question arising from a discussion about Band data oracles is an obvious one: How does Band Protocol compare to Chainlink?
Even if the question is obvious, it's forgivable. After all, Chainlink is by far the most well-known data oracle and is one of crypto's most valuable projects by market capitalization.
Band and Chainlink each have advantages and disadvantages. Let's take a look at a few of them.
To summarize, Chainlink is in the driver's seat when it comes to the data oracle race. However, Band Protocol's foothold in Terra Luna, the wildly popular South Korean DeFi platform, gives it an edge outside of Ethereum.
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