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What is a Blockchain Oracle



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Blockchain oracle connect blockchains to external systems, allowing smart contracts to execute based on real-world inputs and outputs. Oracles provide a means for the Web 3.0 ecosystem to link to existing legacy systems, data sources, and advanced calculations.

Decentralized oracle networks (DONs) enable the creation of hybrid smart contracts, which combine off-chain infrastructure and on-chain code to build complex decentralized apps (DApps) that react to real-world events and interact with traditional systems.

Assume Vera and Sam want to bet on the outcome of a horse race. A smart contract holds the $80 total in escrow, with Vera betting $50 on team X and Sam betting $30 on team Y. When the game is over, how does the smart contract know whether to deliver the money to Vera or Sam? The solution is to use an oracle mechanism to retrieve accurate match outcomes off-chain and send them safely and reliably to the blockchain.

Because the blockchain is a distributed ledger, each node in the network must achieve the same output given the same input. For example, if a node attempts to validate the transaction of another node, the result will be different. This architecture was designed with determinism in mind.

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In blockchain, consensus is the technique for agreeing on a data value, and determinism is essential for nodes to attain consensus. Some of them, such as proof-of-work (PoW) with Nakamoto consensus and proof-of-stake (PoS) with Byzantine consensus, may be recognizable to you. Consensus is one of the primary reasons that allows blockchain to function in the first place.

However, the blockchain world must be linked to the real world. We need to get the price of Ether (ETH) and other cryptocurrencies into a contract in order to have DeFi. To provide decentralized, trustless insurance, we need meteorological data.

See also: What is Quantum Computing?

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