The concept of "blockchain oracle" strangely stands out from the already familiar terminology of the crypto space (for example, the words "tokenization", "mining", "trading", "smart contract" raise fewer questions). What can oracles do in the crypto world? Isn't it something from the myths of Ancient Greece?
What are blockchain oracles?
Indeed, the original concept of "oracle" is taken from ancient Greek mythology. They were priests, foretellers, who explained the will of Gods to ordinary people. In the modern Crypto World, the situation has not changed much: oracles still connect two worlds with each other. Only instead of the Gods there is a smart contract, and instead of the mortal world – everything outside of it.
Blockchain oracles are special algorithms that establish a connection between a smart contract and a source outside the blockchain network, where this smart contract is deployed.
A smart contract is a very functional but limited program. It can work independently only within the framework of its own blockchain. If there is a need to have additional data, the smart contract can’t cope with it. For example, to complete the exchange transaction, it is necessary to find out the current price of the token on the market. That’s when the blockchain oracle comes to the rescue.
Why are blockchain oracles needed?
So, oracles provide smart contracts with information, which helps to successfully carry out transactions. They connect with: trading platforms; decentralized applications (DeFi, NFT, GameFi, etc.); IoT devices; cloud providers; payment systems. Also oracles make audits and carefully check the information.
The popularity of decentralized finance (DeFi) has fueled a rise in demand for trusted blockchain oracles. The vast majority of DeFi projects use smart contracts, which, in order to work correctly, need to communicate with the outside world.
Types of blockchain oracles:
- Software. Such projects get information from digital sources, like cloud storage, databases.
- Hardware. Use physical sources: smart sensors, chips, RFID tags.
- Incoming/Outgoing. Blockchain oracles can both receive information from external sources and transmit it.
- Centralized/Decentralized. If there is only one operator responsible for selecting and providing information from the outside world, then the oracle is defined as centralized. An oracle is considered decentralized if a whole system of nodes is responsible for checking data.
- Contract-oriented. The most expensive type, when a particular oracle serves only one specific smart contract.
- Cross-chain. Such oracles help blockchains communicate with each other and solve incompatibility issues.
- Computing. The main function of such oracles is to calculate how expedient it is to carry out certain operations within a particular blockchain.
What blockchain oracles are out there?
- Chainlink
The main task of Chainlink is to provide smart contracts with correct data. The function of many different algorithms depends on this. So information received from the outside world goes through several stages of processing and validation in different nodes. Big projects like Aave, Synthetix, OpenLaw, Wanchain, SWIFT, Google Cloud use Chainlink services.
- BNC (BraveNewCoin)
This company provides crypto analysis and research. It launched 14 public oracles for Ethereum-based smart contracts for free. These oracles offer information with prices for major cryptocurrencies, and this data is updated daily. Such oracles that provide financial data about cryptocurrencies can be used in programs, applications and crypto wallets.
- Blocksense
Blocksense is a startup that provides a range of blockchain services, including the development and implementation of smart contracts that work with blockchain oracles.
Conclusion
As blockchain technology develops, the oracle ecosystem will rapidly evolve as a reliable way to connect the digital and real worlds. Oracles help to solve the problems of blockchain communication.
The data selected by the oracles is used, first of all, in order to set the most fair price for the operation. External sources provide information about the situation on the market, up-to-date trading data and prices. Did you know about blockchain oracles before? Write in the comments below!
If you want to learn more interesting facts about crypto then check out our blog! You might like our articles “DeFi Hacked!” and “AI Revolution in Crypto”.
