What is: Oracle in Blockchain
What is a Blockchain Oracle?
Blockchain oracles are entities that connect blockchains to external systems, enabling smart contracts to be executed in response to inputs and outputs from the real world. They offer a way for Web3 ecosystems to access off-chain data sources.
At the same time, decentralized oracle networks (DON) make it possible to create hybrid smart contracts, allowing to blend an on-chain and an off-chain infrastructure together.
Types of Blockchain Oracles
There are several types of Blockchain Oracles. Even though all of them combine common purposes like fetching, validating and delivering data to the final destination, they differ from each other in various aspects.
- Input Oracles. The most widespread type. They get data from specified off-chain sources and deliver it to blockchain (on-chain).
- Output Oracles. The opposite type to ‘Input’ ones. They allow smart contracts to give commands to off-chain systems to initiate execution of specific actions (e.g. informing a banking system or pinging an IoT system).
- Cross-chain Oracles. They make interoperability for moving data and assets between chains possible by reading and rewriting data.
- Compute-Enable Oracles. A new type, which is getting more and more popular. They secure off-chain calculations to provide decentralized services.
Where are Oracles used?
- DeFi. Oracles are used at decentralized money markets in order to assess users’ borrowing capacity, at synthetic assets platforms to correlate token value with real-world assets, and by automated market makers in order to concentrate price liquidity.
- Gaming. Oracles are used to generate and increase randomness in NFT drops or in-game rewarding process (e.g. loot boxes)
- Insurance. Input oracles give easier access to physical sensors, web APIs, legal data, etc. in order to verify insurable events, while output oracles are providing smart contracts with the ability to make payouts via other blockchains.
- Business. Oracles help companies in connecting their backend systems to any blockchain, which enables them to perform complex logic, join any chain quickly and implement support of the smart contract services their users need.
- Environmental projects. Oracles supply smart contracts with environmental data from outer sources and help to calculate rewards for ‘environment friendly’ users. They support various forms of Carbon credit.
Blockchain Oracle Problem
If one of the oracles goes offline, it may cause the smart contract to lose access to current data and stop working properly, which would affect the whole ecosystem. If an oracle is corrupted, the data sent to the blockchain becomes faulty, possibly leading to an even bigger jeopardy.
This sort of problem is called ‘garbage in’ or ‘garbage out’, depending on which type of oracle it is related to. Decentralized oracles can overcome this problem.
They are designed to help avoid data inaccuracy and are invulnerable to downtime issues, combining several independent nodes and reliable data sources. Big industries benefit from the combination of oracles and smart contracts in various fields (e.g. finance, insurance, gaming, IoT, identity data, etc.).
Stay tuned and find more about us and what we provide on our:
