If you want a phisics correct chain or rope i cant think of a better way. I dont see any problem with your method, and a rope would be the same thing. The only problem that could arise is the performance, but nice ropes are not easy to do on any engine. Another method, less realistic but with better performance is to create 2 segments, one from the beggining of to rope to the point where the character is honding it, and this segment is strait. The second will go from the character point down to the ground direction and this segment will have a wave pre made animation. Note that the second method is more cartoonish.
