Blockchain Oracles: They serve as an ideal gateway for the development of hybrid smart contracts.
The continued growth of the crypto market over the past decade has helped spur the development of blockchain oracles in a big way. In their simplest and most basic sense, oracles can be thought of as digital entities that can link blockchains to an external platform, allowing the former to use smart contracts and execute commands based on input and output received from various real-world sources.
To elaborate, oracles serve as an ideal gateway for decentralized Web 3.0 systems to access a wide range of data streams, legacy systems, etc., thus enabling the development of “hybrid smart contracts”.
These offerings are able to combine on-chain code and off-chain infrastructure to help build future-ready decentralized applications (dApps) that are capable of responding to real-world events while being fully interoperable. with traditional systems.
Blockchain Oracles: Some Examples
Considering the number of different types of off-chain resources that exist today, a multitude of blockchain oracles are now available to users. Here are some notable examples:
- Entry oracles: These are by far the most commonly used types of oracles in the global technology landscape today. They are designed to accumulate data from real (off-chain) environments and deliver it to a particular network. One of the most common uses of these oracles is as “live price feeds”.
- Output oracles: These systems are primarily designed to allow smart contracts to send commands off-chain, enabling the execution of niche transactions. Output oracles are most commonly used by decentralized banks as well as IoT networks.
- Cross-Chain Oracles: As the name seems to suggest, these unique oracles are able to read/write information on a number of different blockchains, so data from one network can be used to trigger certain actions in another system .
- Compute-enabled Oracles: Although not as common as their aforementioned counterparts, this new generation of oracles are designed to use secure off-chain information to provide users with decentralized services that would otherwise be impossible to achieve.
Use cases for blockchain oracles are growing rapidly
Due to the unique financial and technological proposition presented by blockchain oracles, smart contract developers continually use these platforms to deliver a range of decentralized applications capable of operating in a multitude of different domains. Some of these spaces include:
Decentralized finance (DeFi)
The success of the decentralized finance (DeFi) industry relies heavily on oracles that can provide platforms (operating in this space) with real-time financial data, especially information related to various digital assets and speculative markets. . For example, DeFi money markets harness the power of price oracles to gauge an individual’s borrowing capacity as well as see if their existing positions are under-collateralized (and therefore subject to liquidation).
Many oracles are able to track changes associated with dynamic NFTs which can alter their native characteristics based on external events including temperature surges/drops, time of day, etc.
There are oracles designed to help hybrid smart contracts with causes related to environmental sustainability, allowing them to promote green practices through various verification techniques. In this regard, some oracles are capable of providing smart contracts with environmental data ranging from sensor recordings, to images acquired from spacecraft, to live AQI measurements (and everything else in between).
Entry oracles play a major role in ensuring that insurance-centric smart contracts are able to verify the occurrence of insurable events whenever a monetary claim is initiated by an individual.
Consumer business utility
Through the use of cross-chain oracles, mainstream companies have the ability to relay large volumes of data between their backend systems and external blockchain platforms.
The impact of Oracles on Web 3.0
Right off the bat, it should be noted that oracles have helped bring to life many of the core philosophies that underpin Web 3.0 (i.e. transparency, decentralization, etc.). For example, they allow Layer 1 protocols – such as Bitcoin, Ethereum, etc. – to accumulate a wide range of information from secondary/external blockchains as well as off-chain databases.
To elaborate, consider an example where a regulator wants to ensure the veracity of someone’s identity. This can be done quite easily using decentralized systems, so the regulator can simply use an oracle to communicate with the protected database of drivers in the relevant state and ensure that the information provided is accurate. Indeed, once the identity of the person has been verified, a smart contract can be deployed to automatically facilitate certain actions without requiring any human intervention.
Top Blockchain Oracles Projects You Should Know
Chain link is best described as a decentralized network of nodes capable of providing its users with an array of real-time data transmitted from off-blockchain sources to on-blockchain smart contracts through the use of oracles. Technically speaking, Chainlink’s smart contracts are pre-specified and are capable of not only evaluating live data, but also automatically executing certain actions as conditions are met.
LINK is the native crypto token of the Chainlink ecosystem. It can be used not only to pay for a wide range of services within the network, but also for other external purposes. For example, they can be used to facilitate deposits initiated by node operators (as and when orders from contract creators).
CQFD is essentially a decentralized oracle capable of connecting a range of blockchain networks, smart contracts, and external data sources to each other seamlessly. QED’s precursor, DelphiOracle, powers algorithmic stablecoins, prediction markets, and other dApps operating on the EOSIO ecosystem.
Thanks to its dynamic and very robust operational framework, QED is able to allow its oracle ecosystem to use an external guarantee as collateral in relation to its smart contracts, thus mitigating many systemic risks that could affect the platform at long term (such as bad network interpreters).
From the outside looking inside, API3 can be seen as a collaborative project intended to provide a host of API services to smart contract platforms in a way that is not only rooted in transparency (i.e. decentralized), but also requires a level of trust minimum between its participants.
To elaborate, the project is governed by a Decentralized Autonomous Organization (DAO) – aka API3 DAO – ensuring that all of its coding data is available to developers in an open source format while maintaining a high level of operational transparency.
Like many of the projects mentioned above, winet can be thought of as a decentralized oracle network (DON) designed to connect smart contracts to real data sources. To elaborate, the platform allows third-party software to accumulate information that has been posted by any web address at any given time – filled with verifiable evidence of the data’s veracity.
Witnet offers a well-developed blockchain ecosystem as well as a native crypto token that miners can earn by “fetching, attesting, and serving web content” to system clients. Finally, WIT can be used to pay for various internal operations such as inducing witnesses for various tasks related to retrieval, attestation and delivery (RAD).
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