What Are Blockchain Oracles, And Why Are They Important?

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Image Source: Freepik
Oracles, prophets, seers, and sibyls are entities that relay information between the mythical realm to the real world. Similarly, blockchain oracles play a vital role in relaying real-time data from the real world to the blockchain realm. 

In this article, we’ll introduce you to the fundamentals of blockchain oracles, why they matter, and other crucial information. Let’s begin.



Blockchain oracles explained

A blockchain oracle is a piece of software that is used to connect a blockchain with the outside world. In other words, it allows data to be transferred between the blockchain and external systems, which is important to allow the blockchain to interact with real-world data and events. 


Third-party service providers usually provide blockchain oracles, but a handful of open-source options are also available. Oracles can be used for various purposes, such as price discovery, event verification, smart contract execution, etc.


The foremost aspect to know about blockchain oracles is that they must be trustworthy, as they play a critical role in ensuring that data on the blockchain is accurate and up-to-date. Hence, choosing a reputable oracle provider with a good track record is imperative. 


Furthermore, blockchain oracles can be basically divided into two kinds; off-chain and on-chain oracles. Off-chain oracles get their data from sources outside the blockchain, while on-chain oracles get their data from within the blockchain itself. That said, both types have their advantages and drawbacks. 

How do blockchain oracles work?

Image Source: Freepik
Oracles work by providing relevant and often real-time data to “smart contracts” so that they can execute their transactions. Said oracles receive this data from external sources such as APIs, webpages, news articles, and others and package this data into a format that can be read by smart contracts. The oracle then signs the data, verifying its authenticity over the decentralized blockchain. 


Smart contracts are similar to contracts in the real world, but they run when predetermined conditions are fulfilled. Generally used to automate transactions between people, companies, and other entities, smart contracts mitigate intermediaries, loss of time, and tedious paperwork. 

What are the different types of blockchain oracles?

There are basically three different types of blockchain oracles, and the functions they perform differentiate them:


  • Trust - is the relayed data decentralized or centralized?

  • Source - is the relayed data originating from software or hardware? 

  • Direction - is the relayed data inbound or outbound?


Furthermore, the various types of oracles are: 


  • Software oracles

  • Hardware oracles

  • Input oracles

  • Output oracles

  • Cross-chain oracles 

  • Compute-enabled oracles

Who are the major players in the blockchain oracle industry?

The fundamental responsibility of a blockchain oracle is to provide trustworthy data to smart contracts, and quite a few names operate in this domain successfully. 


ChainLink, Oraclize, Aeternity, Universal Market Access, and Decentralized Oracle Network are the top five players in the blockchain oracle industry. 


Each of these projects works on different aspects of the problem, but they all aim to provide secure and reliable data to smart contracts.

Why are blockchain oracles important?

Information is king, and blockchain oracles are essential because they perform one of the most vital functions in relaying information. Ensuring the accuracy of information sourced from trusted resources, smart cards rely heavily on oracles to provide up-to-date information, without which the information may be completely irrelevant. This could lead to faulty transactions and incorrect contract executions. 


Oracles also provide much-needed flexibility to smart contracts. Connecting to real-time data sources allows smart contracts to respond to changing conditions and trigger transactions accordingly.

To conclude

Unlike real-world oracles that can do without older people claiming to hear voices from the beyond, blockchain oracles are not only essential but perform the most critical function - transferring information. In addition, trusted oracles are reliable and secure, making them ideal for use in various industry settings. With the help of blockchain oracles, we can streamline processes and ensure that everyone involved gets the information they need when needed.


Location: Bengaluru, Karnataka, India

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