It's probably best to read their whitepaper, as I don't know all the details off the top of my head, but they have a number of ways to prevent gaming the system. Of course, nothing is 100% sure, even Bitcoin can be attacked with enough power. It's about putting in place the economic incentives, such that the game theoretic best approach is to provide value to the network rather than trying to harm it.
So in the case of Chainlink the idea would be that it's much more profitable to be an honest data provider than a dishonest one, and each data source uses a number of independent data providers. If you act dishonestly you will lose out on the value you could have gained by acting honestly and also be penalized in the reputation system.
Cool I’ll have a look sometime. I can definitely get the sense there seems like there could be something there with Ethereum, and if there is something there it could be very very big.
What remains unknown for me is whether that something actually exists.
I think if you take some time to familiarize yourself with the latest developments in DeFi on Ethereum, you'll see that it already exists. Lending/borrowing, exchange, derivatives, insurance, prediction markets, and a host of other use cases have been live for a while now and platforms are doing billions in volume. Essentially the building blocks of a modern financial system all built without reliance on a trusted third party institution. During the last boom in 2017 there were a lot of big promises, and many teams failed to deliver or scammed users, but what we're seeing now is the legitimate projects coming to life after years of work during the last bear market.
Oh, all of that seems less interesting to me, at present, than chain link. The defi applications are interesting but it isn’t clear how any of it affects the real economy. It seems to be a lot of intra-crypto speculation and money moving.
That would also apply to the stock market etc but ultimately traditional finance does allocate capital to businesses and actually produces things in the economy.
However, if Chainlink etc can link all of that Defi stuff to real activities, it could be powerful.
I’m still on the fence as I haven’t seen too many practical examples, but it definitely seems to be the space to produce one if they can be made to happen.
So in the case of Chainlink the idea would be that it's much more profitable to be an honest data provider than a dishonest one, and each data source uses a number of independent data providers. If you act dishonestly you will lose out on the value you could have gained by acting honestly and also be penalized in the reputation system.