Knowledge Center

What Are Blockchain Oracles?

To maintain the security and integrity of the network, blockchains and smart contracts are unable to access off-chain data (data existing outside of the network). Quite often, this limitation can be a major inconvenience if network users need information that is stored outside of the blockchain. To solve this problem, blockchain oracles are used to bridge the gap between the network and the outside world.

Blockchain oracles are third-party services that provide a link between off-chain and on-chain data. Without this type of service, smart contracts would play a very limited role within the blockchain network because they would only have access to data within the blockchain.

Types of Oracle

The main function of the oracle is to verify and authenticate the data source and then communicate the information to the smart contract.

Examples include stock and commodity prices, weather information, payment, and flight schedules.

It’s important to note that a smart contract does not simply wait to receive data from an outside source to flow into the system. Instead, the contract must be triggered. This means that network resources must be spent on calling data from the outside world.

Software Oracles

Interact with information originating from an online source. This would include such things as stock and commodities quotes, weather information, and schedules.

Hardware Oracles

Retrieve information from the physical world. For example, any type of motion detector. This information would be collected and then sent to the smart contract.

Inbound Oracles

Transmit data from external sources to a smart contract.

Outbound Oracles

Send information from a smart contract to the external world.

The main challenge with blockchain oracles is that trust needs to be established between the blockchain ecosystem and the outside sources who provide the information. Remember that oracles are third-party services. This means they are not required to conform to the high level of security provided by the blockchain network. Security experts regard blockchain oracles as the weak link between the blockchain and smart contracts. However, measures are being taken by security experts within the crypto community to address this issue before it becomes a problem.

Blockchain oracles are not going away because they play such an important role in the success of smart contracts. Therefore, blockchain security teams will continue to work together to find a permanent solution to this concern.

Brief Summary of Blockchain Oracles

  • Blockchain oracles provide smart contracts with external information.
  • Typically, smart contracts only have access to on-chain data.
  • Blockchain oracles provide a link between off-chain and on-chain data.
  • Without access to off-chain data, smart contracts would play a very limited role.
  • The main function of the oracle is to verify and authenticate the data source.
  • There are four main types of blockchain oracles.
  • The main challenge with blockchain oracles is to establish trust.
  • Oracles are the weak link between the blockchain and smart contracts.
  • Blockchain security teams are working to improve the situation.
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