What Are Oracles in Blockchain?
Many blockchains utilize oracles to provide the best experience to users. But what are oracles exactly? And do you need to understand them in order to use blockchains?
Generally, an oracle is just a way for a blockchain to bring in information from other blockchains or outside sources, and you don’t need more information to use them. But, just in case you want more info, keep reading as we do a deep dive into blockchain oracles.
What Are Blockchain Oracles?
Blockchain oracles are connections that allow data to be ported into or out of a specific blockchain in order to increase the functionality of the blockchain. For example, a cryptocurrency market app would need connections that provide it with information on the market value of certain cryptocurrencies.
Oracles aren’t just bridges for data; they can also support bridges to more advanced computations residing on other blockchains, DAOs, and smart contracts on other blockchains. Oracles are an easy way for a blockchain to expand on its own functionality without having to program everything on its own. This saves blockchains money and encourages innovation in the space.
Oracles, are by nature decentralized, requiring numerous oracles for a single data port to provide system consensus when porting in information.
Who Created Oracles?
The original oracle was ChainLink, a blockchain platform that specialized in providing connections to other blockchains. As such, they are currently one of the largest players in the space, though several other blockchains have begun offering oracles in the years since ChainLink’s inception.
ChainLink was a blockchain created by Sergey Nazarov and Steve Ellis in 2017. The blockchain formally launched in 2019 and has been the most popular blockchain oracle company since.
Beyond just publishing the white paper on oracles, ChainLink has also become a service provider in the blockchain space, allowing blockchains options to expand the functionality of their smart apps without having to pay for their own development. How cool is that?
How Are Blockchain Oracles Used?
Blockchain oracles import and export knowledge using zero-knowledge proofs. This means that not only can they be used to import and export widely known information (which saves users time), but they can also be used in the development of digital identity and health care files, as they can also provide privacy.
Basically, no matter how you look at it, blockchain oracles remove the limits often found in blockchains and smart contracts. No longer are these technologies limited to what exists within their environment; now, the sky is the limit, as anything can be imported or exported as needed.
Do All Blockchains Need Oracles?
Most blockchains that you will find yourself using do employ oracles. That being said, not all blockchains need oracles. In fact, some of the more simple smart contracts function best with only the information provided in their ecosystem.
However, as the blockchain world continues to grow and expand, so do the use cases for blockchain oracles. While we are sure a few simple smart contracts will remain, we truly doubt that the newer smart contracts entering the market will experience widespread success without some sort of oracle chain.
Types of Blockchain Oracles
Like most technologies in the blockchain space, there are numerous types of blockchain oracles. Below are the most common ones.
Pull-Based Oracles
These oracles pull real-world data onto a blockchain. Usually used for smart contracts and price feeds.
Push-Based Oracles
These oracles take data from the smart contracts and push it into the real world to trigger actions. Examples include banking payment actions, or pinging an IoT device after a payment is made (Sometimes also called hardware oracles).
Cross-Chain Oracles
These oracles function exactly as the title indicates, allowing two blockchains or smart contracts to interact with each other. These act as a bridge between blockchains.
Compute-Enabled Oracles
This is the newest type of oracle, and it allows smart contracts to compute off-chain to save power, because of legal restraints, and more. These are the zero-knowledge proof oracles, which can be developed for use in decentralized identity or to provide randomness to casino outcomes.
Best Use Cases for Blockchain Oracles
There are so many uses for blockchain oracles, we can’t possibly list them all here, but below are some of the most common uses on blockchains today:
· Market makers
· Time and date info
· DEX and CEX
· Blockchain escrow contracts
· For elections
· Digital identity development
· Including randomness for blockchain gaming
· Crypto news sites
· IoT sensors in supply chain blockchains
· Dynamic NFTs
Of course, we do need to mention that, like a bridge, oracles require redundancy. There is always a chance that information coming from a single oracle could be lost if the oracle were to go down, even temporarily. Thus, the most robust blockchains feature numerous oracles for data collection, also utilizing these as a consensus mechanism to prevent against accidentally bringing false information into a blockchain.
Can Humans Act As Oracles?
Yes, humans can act as oracles, putting information into smart contracts on a regular basis. However, human oracles are not decentralized (unless a company is hiring multiple people to input the same data), and mistakes are common. If that weren’t enough, humans would need to be available around the clock to import data when it is requested by the smart contract.
Additionally, depending on where the human is getting the data, AI has been causing all sorts of issues with misinformation being provided to those who don’t realize AI is a learning machine and doesn’t actually have all the answers.
That being said, it does still happen, especially at smaller blockchain companies.
Overall, if you have ever used a blockchain besides Bitcoin, you have likely used an oracle. There is just no way to measure the immense uses of oracles in blockchain, but we know that they are almost everywhere. While oracles aren’t necessary for a blockchain to be successful, we find them much more dependable than the human alternative and expect this sentiment to increase in the future.
