It might sound like a character from a comic book movie, but a blockchain oracle is critical to the functioning of the entire network.
Below, we will outline the reasons why that is the case.
What is an Oracle?
An Oracle is a bridge between real-world data and smart contracts on a blockchain.
Smart contracts are self-executing pieces of code that run on a blockchain and facilitate transactions automatically when certain conditions are met. These conditions are typically based on information from the outside world, such as stock prices, weather data, or sports scores.
This is where Oracles come in.
How do Oracles work?
Oracles act as intermediaries between off-chain data and on-chain smart contracts. They retrieve information from various sources, such as web APIs, and feed it into the blockchain for use by smart contracts. Oracles can also verify the authenticity of this external data to ensure its accuracy before passing it onto the blockchain.
Why are Oracles necessary in blockchain?
Blockchain technology is known for its decentralization and trustless nature.
However, this also means that blockchains cannot directly access real-world data without compromising their security and integrity.
By using an Oracle, blockchains can receive verified external data without relying on a single trusted source. This allows for the automation of complex processes and the creation of more advanced use cases for blockchain technology.
Types of Oracles
There are three main types of Oracles: software, hardware, and consensus-based. Software Oracles rely on external data feeds from websites or APIs, while hardware Oracles use physical sensors to collect real-time data. Consensus-based Oracles work by aggregating data from multiple sources and using a consensus algorithm to determine its accuracy.
Conclusion
Oracles represent an essential component in the functioning of blockchain networks. They serve as bridges between off-chain data and on-chain smart contracts, making it possible for blockchains to interact with the real world in a secure and reliable manner.
