We always prefer things that provide security, data, and trust, and blockchain establishes a new way. One of the most important things is that, without a middleman, it allows everyone to exchange value peer-to-peer. You know who the middleman is in traditional finance? It is a bank. Well, no doubt blockchain is a powerful technology, but you should know that there is a limitation. When it comes to accessing real-world information, it can't do it on's own, and here the oracles enter the game.
What Are Oracles in Blockchain?
When you want to cross a river then you can build a bridge to join the two areas Similarly, there is an oracle that is a work like a bridge between the outside world and blockchain. Blockchain only knows what is already on it, which means it is completely disconnected from the outside world, or in other words, we can say closed system. Oracles are the feeders that feed the useful data to the blockchain system, and this data comes from the outside world. For decision-making making data is important.
If the smart contracts are about insurance and providing services regarding insurance, then oracles help to feed the data regarding insurance so that they can provide the services. So now you can clearly understand what Oracle is.
Why Oracles Matter
Oracles are the backbone of the blockchain system because data is key, and without the outside data, blockchain smart contracts are not gonna work. Smart contracts are not going to respond because they don't know what is happening in the real world, and to let them know, oracles are needed. Let's say there are weather conditions, market live prices, education data, and sports results, and these are the real events that need to be connected with the smart contracts.
Oracles are for :
Finance: There are lots of currencies, stocks, and digital assets in the world, and they need to be reported live to the smart contracts.
Insurance: Verify and approve according to the latest events in the world.
Supply chain: It is about goods tracking and directly reporting to the blockchain.
Gaming: Sports is a field that is huge, and live scores and latest events need to be reported
Types of Oracles
There are software oracles, hardware oracles, inbound oracles, outbound oracles, and consensus oracles, and each one is different from the others. Software oracles get data for blockchain from online sources, while hardware oracles catch all the data from the physical world. Inbound oracles catch data from the outside world, and this is the first step that they perform and bringing it into the blockchain. Outbound oracles are built totally differently, and they send the important data from the blockchain to the outside world.
Consensus oracles are different and their role is different because they combine the data from multiple sources and reduce the risk of fake data.
Challenges of Using Oracles
Technology is for the well-being of humans, but at the same time, it is not without challenges. There is a bigger issue with oracles, and that is trust, which means oracles can bring fake and hacked data that can lead to distraction in the smart contract.
One bad source causes trouble, but what if gathering information from lots of sources? Yes, this is the solution, and using decentralized oracles is the solution here.
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