What are Blockchain Oracles?
6 min reading
What are Blockchain oracles and how do they work? Keep reading and learn lots of useful information about it.
What are Blockchain Oracles?
You must have certainly heard and read about blockchains and it seems like you’ve already heard the last word and then now you hear about Blockchain Oracles. That’s what’s interesting about crypto-currencies. You learn about exciting developments in the crypto-currency market every day. In this article, we will talk about Blockchain Oracles and how they work. A blockchain is a technology that allows a collective group of participants to share data.
Blockchain and oracles
Remember that the blockchain is to bitcoin what the internet is to email. It stores information in a way that makes it impossible to alter or mislead the system. The data is divided into blocks and chained together with unique identifiers. But a Blockchain oracle is a device that connects the blockchain with data outside the blockchain. Since blockchains and smart contracts cannot access data outside the network, blockchain oracles provide smart contracts with external information. In summary, blockchain oracles provide information of the external world to execute the agreement.
Since the blockchain has distributed data in which each node in the network must be able to provide the same results from the same input, and when one node seeks to validate a transaction that another node has performed, it would get a different result. This is where the blockchain’s oracles come in, which link data on the blockchain to data of the blockchain.
Oracles are very important because they expand the scope of smart contracts. Without blockchain oracles, smart contracts will be limited because they will only have information within their network. Remember, oracles are not data as one might assume, but only pose queries, verify and authenticate external data sources, and then relay the resulting information. Oracles relay information such as prices and payment success.
How oracles function
Here is a very simple example of how oracles work. Let’s say Hayley and Savanna are making a bet to see who will take the winner of this week’s Shopping Queens. From the contestants, they each pick one.
They agree on an amount and place the funds into a smart contract that will release the funds to the winner based on the outcome. Since smart contracts cannot access information outside of their network, they will have to depend on the blockchain oracle to get the information they need. At the end of the week, the oracle queries an API (application programming interface) to find out who actually won, so it can pass the funds on to the winner. Without the oracle, it would not have been possible to settle the wager without one of them ahead of the other. The different types of oracles are: Software and hardware Oracles, Inbound and outbound Oracles, Centralized and decentralized Oracles, Human Oracles, and Contract-specific Oracles.
Oracle Networks. Chainlink (LINK)
Chainlink network is an oracle network that leads decentralised oracle solutions with large DeFi projects relying on its data. It comprises independent node operators that gather and deliver information to middleware applications. This middleware combines the data collected into a single output and sends out to the blockchains to be read by smart contracts depending on them. Chainlink is widely used by Ethereum based apps and its core software can be adapted to connect with any blockchain.
This is a secure scalable blockchain-agnostic that connects real world data and API smart contracts.In a world where data is priceless, Band Protocol fills the role of providing verifiable data to these decentralized apps and smart contracts. Band connects on-chain data to off-chain and makes data available for blockchain query. Band protocol was created because it needed to fill the gap of cross-chain communication. Blockchains were unable to share data with smart contracts.
In conclusion, having a reliable mechanism that ensures communication between smart contracts and the outside world is very interesting; however, despite this advantage, it also has its drawbacks. One of them is the fact that they are not part of the security mechanisms set aside by public blockchains. The third-party issue could be a flaw since hackers can gain access to the data stream through these oracles. However, blockchain oracles will have to be one of the building blocks to be implemented in a secure, reliable, and trustless manner for the blockchain ecosystem to grow.