How oracles transform blockchain

Have you ever considered how blockchain can interact with the external world? The key to this interaction rests on a single entity: oracles.

In this article, we will explore the crucial role they play in the blockchain ecosystem, acting as the eyes and ears of the blockchain. By transforming real-world data into digital information, oracles enable smart contracts to utilize these data for a variety of applications. Let’s delve into the mechanisms and impact of oracles to understand their critical influence and discover how to use them to our advantage in cryptocurrency markets.

The principle of oracles

The principle of oracles is straightforward: a smart contract cannot natively interact with data outside its blockchain.

Oracles, therefore, act as a bridge between the digital world and real-world data. They provide smart contracts with the necessary information to execute transactions based on external conditions or events. This capability to integrate reliable data is vital for the precision and reliability of decentralized transactions. Without oracles, smart contracts would be isolated, limiting their utility and effectiveness.

The role of oracles in smart contracts

Smart contracts rely on oracles to access accurate and timely data, such as exchange rates, stock prices, or sports results. This interaction allows smart contracts to operate autonomously while staying connected with the external world, thereby increasing their applicability and relevance in various real-world scenarios.

Example of using an oracle

Consider Chainlink, a decentralized oracle that plays a major role in the blockchain ecosystem. Launched on Ethereum on June 1, 2019, Chainlink has extended its reach to other blockchains and Layer 2 networks like Polygon, BSC (Binance Smart Chain), Arbitrum, and Avalanche. It provides reliable and secure data, essential for applications such as betting on sports events through decentralized apps (dApps). For instance, a betting dApp could use Chainlink to determine the winner of a football match and execute the programmed action reliably.

Types of oracles and their security

There are two main types of oracles: centralized and decentralized.

Centralized oracles are faster but pose security risks because a single data source can be manipulated. Conversely, decentralized oracles use multiple data sources and nodes to enhance the reliability and security of the transmitted data. Well-known examples like Chainlink or Pyth Network utilize multiple data sources and nodes to ensure the reliability of the information transmitted.

Use cases of oracles

Oracles are used in many fields: DeFi for asset prices, gaming, insurance, etc. Essentially, they pave the way for more complex and interactive blockchain applications with the external world.

For example, Sorare is a digital game where users collect and trade football player cards, with values varying based on the players’ real-world performances. For the game to function, it needs to know how these players are performing on the field. This is where an oracle comes in. The oracle retrieves information about the players’ performances, such as goals scored, assists, or saves, and transmits it to the game’s smart contract.

Then, the smart contract uses this data to adjust the value of the digital cards.

If a player scores many goals, for instance, the value of his card in the game might increase. Thus, thanks to the oracle, Sorare creates a direct link between real-world football performances and the digital game universe, making the experience both more dynamic and immersive for users.

Conclusion

Oracles are undoubtedly the backbone that connects blockchain to the real world. They enable the creation of more sophisticated decentralized applications, representing a major advancement in the evolution of the blockchain ecosystem. By providing secure access to external information, they open the way for more complex and reliable applications. Chainlink, as a leader among oracle projects, perfectly illustrates the importance and power of this technology.