Blockchain Oracles act as intermediaries connecting isolated blockchain networks to real-world data. This is essential for smart contracts to interact with real-world events and execute based on the data provided by Oracle. They expand the blockchain use cases bridging the gap between on on-chain and off-chain world. Oracles are widely used decentralized applications in various industries including decentralized finance (DeFi), gaming and prediction markets, logistics, and more.
Blockchain oracles are third-party services for smart contracts in provide a trusted source of data based on outside world sources to the on-chain world. There exist different types of oracles such as software, hardware, decentralized, and more. Each helps smart contracts to operate in a wide variety of applications, interconnecting real-world data to the blockchain network.
Oracles act as gatekeepers for smart contracts and Dapps, making sure that the contracts have the data required to make accurate decisions on demand. This article explains blockchain oracles, their importance in the web3 ecosystem, and their top use cases.
What are Blockchain Oracles?
Smart contracts are the self-executing code that is deployed on the blockchain. They are not able to make decisions on their own but purely work based on the logic written in the code by developers. Transactions on the blockchain are irreversible, it is important to provide a trusted source of data to smart contracts to execute transactions. Blockchain oracles are external services that feed information to smart contracts for various purposes. The oracles must provide a secure data feed of external data to the blockchain and the data should be validated ensuring its quality.
For building decentralized applications that function based on any real-world event, the developer must provide real-world data to smart contracts and define the logic accordingly. For example for a sports betting platform, the information on sports games such as which team wins needs to be provided in that smart contract. This is where oracles come into play. Oracle provides the necessary information to smart contracts for automatically transferring the bet amount to the user who placed the correct bet.
Types of Blockchain Oracles
- Software Oracles are the oracles that work with data obtained from online sources such as public APIs, websites, or databases. They collate the data and then push data in some format into the blockchain for decentralized applications to use.
- Hardware Oracles are physical oracles that collect data from physical devices or IOT sensors and feed them to the blockchain. IOTs are popular in-demand data suppliers to smart contracts that execute conditional logic on measurable quantitative values in the physical world.
- Cross-chain Oracles are able to read and write data across different blockchains. They ensure blockchain interoperability allowing the transfer of assets and communication between networks.
- Decentralized oracles collect data from various different sources reducing the risk of centralization. Chainlink price feed offers decentralized Oracle services.
Use Cases of Blockchain Oracles
Blockchain oracles introduced a wide variety of real-world use cases of blockchain technology and revolutionalized decentralized applications. Here are some industries that benefit from oracles.
Finance
Decentralized finance (DeFi) is one of the sectors where blockchain oracles directly impact its growth and adoption. Blockchain oracles are used to receive data on the price of assets and exchange rates. Popular DeFi protocols such as uniswap, aave, and, compound completely rely on oracles in providing real-time price feed data for their lending, borrowing, and trading of assets transactions.
Insurance
The insurance industry can benefit from oracles to provide data and confirmation of the occurrence of an insured event to smart contract insurance enabling automatic transfer of the amount to the claimer. Integrating weather data, real-time status of flights, to smart contracts can help insurance claiming a more transparent and reliable.
Supply Chain and Logistics
The use of blockchain oracles in supply chain and logistics helps in tracking the location of goods. Oracles obtain data from IOT devices that are attached to shipments and send real-time status to oracles and then to the blockchain. This ensures security, transparency, and trust in the sector.
Gaming and NFTs
Gaming and NFTs are another industry that greatly depends on off-chain data such as competition results, in-game statistics, and randomness in smart contracts. Oracles are behind of rise of predictive markets in web3, as they provide reliable real-world data that is needed to function in prediction games and platforms. For NFTs holding real-world assets, oracles help make informed decisions on buying and selling by provisioning its real-time pricing.
Energy and Sustainability
Oracles automate energy distribution and support sustainability by the interaction of smart contracts with real-world energy data. Oracles automatically handles settlements and contracts that are related to energy distribution and consumption. By monitoring and reporting carbon emissions, this data can be incorporated into tokens and trade tokens promoting sustainability.
Top Blockchain Oracles
Chainlink is a popular decentralized oracle network and data provider to smart contracts on the blockchain. Chainlink Oracle network offers features such as decentralized computation and provides off-chain computations.
Pyth network delivers real-time market data from various sources to smart contracts on any blockchain network. It supports over 35 blockchains with its decentralized Oracle service.
Band protocol (BAND) is a cross-chain data oracle that aggregates and connects real-world data to APIs and smart contracts. It has a decentralized oracle with cross-chain data sharing capability which make it different from other oracles.
API3 is a decentralized oracle that provides real-time data to smart contracts via APIs. The data provided by them are directly from the source without relying on third-party middlemen.
Conclusion
Blockchain oracles are important elements in decentralized systems in connecting with real-world data. Oracles enable developers to create a broader range of decentralized applications and smart contracts across finance, gaming, and beyond using secure data feeds. As technology evolves and advances the number of real-world applications grows, and the need for a decentralized, secure, and adaptable oracles system will increase.
