Are you a blockchain enthusiast and want to learn about Blockchain Oracle? This article is a one-stop destination as it illustrates the concept of blockchain oracle along with its types and problems associated.
Learning of Blog
- Introduction to Blockchain Oracle
- Types of Blockchain Oracles
- The Verdict
Introduction to Blockchain Oracle
As smart contracts cannot access data from outside their network, they need access to information from the outside world. Blockchain oracles are the services that send and verify real-world occurrences and submit information to smart contracts, triggering state changes on the blockchain.
Blockchain oracles are said to be third-party services that provide smart contracts with external information. They provide a link between off-chain and on-chain data. These are vital in the blockchain ecosystem because they expand the scope in which smart contracts can operate. To put it in simple words, we can say that they act as a bridge between blockchains and the outside world.
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Types of Blockchain Oracles
Blockchain oracle acts as an interface as Smart contracts cannot interact with external data; thus, it has to depend on an oracle to feed it the necessary information. Let’s now explore the different types of blockchain oracles.
These types of oracles interact with online sources of information and then transmit it to the blockchain. They can collect information from servers, websites, or any data source on the Web. Since these oracles are connected to the Internet, they can supply and transmit the desired information to smart contracts in real-time. They can provide information such as exchange rates, digital asset prices, or any other real-time data.
Hardware oracles are designed in a way to get information from the physical world and make it available to smart contracts. These oracles translate real-world events into digital values so that smart contracts can easily understand them.
Such information could be received from any reading devices such as electronic sensors, barcode scanners, and others.
Inbound Oracles and Outbound Oracles
Inbound Oracles– These Oracles provide data from the external world to smart contracts.
Outbound oracles- These are just opposites of inbound oracles. These oracles send information from smart contracts to the external world.
Unlike centralized oracles, this type of oracles does not rely on a single source of truth, thus increases the reliability of the information provided to smart contracts. These oracles follow the same objectives as that of public blockchains. Although it aims at achieving trustlessness, they do not completely eliminate trust, but rather distribute it between many users.
It is a type of oracle that is controlled by a single entity and is the only provider of information for smart contracts. But using a sole source of information is risky as any malicious interference will have a direct impact on the smart contract. The major drawback of centralized oracles is the existence of a single point of failure. Furthermore, which makes smart contracts less resilient to vulnerabilities and attacks.
Sometimes individuals with specific skills in a particular domain can also serve as oracles. They can research as well as verify the authenticity of the information from various sources and translate that information to smart contracts. As human oracles can verify their identification using cryptographic means, the possibility of a fraudster faking about their identity and providing corrupted information is low. Human oracles are not only able to transmit deterministic data, but also to respond to arbitrary inquiries, which could potentially be hard to do by a machine
It is the type of oracle that is designed to be used by a single smart contract which means if one wants to deploy several smart contracts, several numbers of contract-specific oracles have to be developed. These oracles are considered to be very time-consuming and expensive to maintain.
Blockchain Oracles facilitates communication between smart contracts and the external world, which is vital for the global adoption of blockchains. But the main challenge with oracles is that if the oracle is compromised, the smart contract relying on it is also compromised. Without blockchain oracles, smart contracts have to rely on information already within their networks, which would considerably limit their capabilities. Blockchain oracles have the potential to safeguard mechanisms that could enhance the blockchain ecosystem in all aspects.
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