A Comprehensive Guide to Blockchain Oracle

Blockchain Oracles

In ancient Greece, people used to visit oracles to connect with God and get worldly information. Similarly, in the world of blockchain, whenever a smart contract needs external information from the outside world, it calls forth the blockchain oracles. They are intermediaries between the smart contract and the external world. Smart contracts do not have access to data that is outside the chain, i.e., data that is not present in the network. However, some contracts may need outside world data for their functioning. It is where the oracles come into play and act as message senders from the outside world to the smart contract.

The Oracle Problem

Blockchain is cut off from the rest of the world; they have no access to it. Also, even if blockchain somehow gains outside information, two problems arise the integrity of the data and the problem of a single source, which again introduces the lack of decentralization. The control of a single source can be with any powerful entity outside of the blockchain, and a blockchain oracle, like chainlink, solves this problem by decentralizing itself. It gets data from multiple sources, so even if any node is hacked or given the wrong data, it can be easily kicked out of the oracle network.

It includes online sources of information that can be easily accessed, such as public databases and websites. Also, these provide details on public transport, temperature readings, and the recent price of financial assets. These are the most efficient types of oracles due to their inherent interconnectedness to the internet. It enables software oracles to supply current information to smart contracts.

Types of Oracles

The classification of blockchain oracles is into the following types based on the source of the information, the flow of data, and the mechanism they use for the verification of data. Below are the major types of blockchain oracles.

Software Oracles: They provide information about the data, which is easily available on the internet, like stock prices and temperatures of different places. Because they are all directly connected to the internet, the information is always up to date.

Hardware Oracles: The design of hardware oracles is in such a way that they send data to the contract whenever an event triggers in the physical world. For example, if a car crashes sensor sends this to the insurance smart contract.

Inbound Oracles: They provide data to the smart contract. The data is out of the smart contract and helps the smart contract performs its functions. For example, updated temperature data delivered on the contract.

Outbound Oracles: It provides smart contracts with the ability to send data to the external world. For example, if a lottery contract needs to contact the winner, it may use them.

Consensus-based Oracles: These types of oracles work on consensus-based principles, so they get their information from markets like Gnosis and Augur, which are human consensus and prediction markets. Also, the mentioned prediction markets have a rating system for oracles to prevent risk and unreliability.

Major Blockchain Oracles

Chainlink

It can be considered one of the most well-known oracles in the blockchain world. The company was started in 2017 by Sergey Nazarov and now has a market cap of 3.3 billion dollars. It provides data feeds for assets like cryptos, currencies, and weather data. It also provides historical price data. The interface provided by the chain link is called AggregatorV3Interface. Through it, we can access all the major price feed functions.

UMA

Uma stands for universal market access and is an optimistic oracle and dispute arbitration system that securely allows arbitrary data types to bring on a chain. UMA’s oracle system provides data for projects, including a cross-chain bridge, insurance protocols, custom derivatives, and prediction markets, as stated in their docs. They have a market cap of 171 million dollars and help to create different synthetic assets on the Ethereum blockchain.

Winklink

It is the first blockchain oracle that works for the Tron network. The architecture of winklink consists of winklink nodes, and the external data passes through winklink nodes to the Tron blockchain. Winklink nodes monitor the contracts on the Tron blockchain for requests via events. They retrieve the external data and submit them to the blockchain.

Applications of Blockchain Oracles

Prediction-Based Systems

In a system like a lottery, there is a need for an unbiased generation of a random number. This task is not as simple as it seems, and have been various scams in the world that have occurred from time to time. In many cases, the manipulation of the generation process has been by the owner. But, in a Smart contract-based lottery system, blockchain oracle use can be to get a random number. The oracle is not centralized, so there will be no manipulation.

Insurance-based Systems

In insurance contracts, there is a need for the verification of real-world data. For example, in car insurance, the company needs to pay the insurance whenever an accident happens with the car, and the client has to submit the accident documents to the company. But in the case of a smart contract, an oracle can transfer the data from the car sensors to the contract, and in turn, it can execute the payout functionality.

Real World Betting

The user can use Blockchain oracles to get the outcome of an event in the future to execute the result of the bet. For example, two people can bet on their favorite football team before the match, and after the match, the contract can fetch the results through the oracle and give the bet prize to the winner.