Wednesday W.O.W - Oracles 🌐🔗🌏
[4 min read] Your mid-week bite sized treat on emerging tech on our journey to the Metaverse. Learn how a blockchain oracle acts as an essential bridge between the on-chain & off-chain environments
A nibble of knowledge in your inbox every Wednesday with a simple format:
🇼 What the technology is.
🇴 Objective(s) - what is it trying to achieve, with some examples
🇼 Why it is important.
This is week 51 of the 520 weeks of writing I have committed to, a decade of documenting our physical and digital lives converge.
🇼 What are Oracles?
Blockchain, the technology underpinning crypto and smart contracts, faces a dilemma — how to connect with the real world without sacrificing decentralisation. Enter blockchain oracles, sophisticated mediators that facilitate the transfer of reliable off-chain data into the Web3 ecosystem. Imagine them as the diplomats between the crypto and non-crypto realms, ensuring seamless communication.
In essence, a blockchain oracle acts as the bridge, shuttling relevant data between a smart contract's blockchain and external sources. They are the missing link enabling blockchains, like Ethereum, to interact with the broader environment. Without oracles, blockchains would remain closed systems, confined to on-chain activities.
The term "on-chain" refers to data and computations occurring within a native blockchain, while "off-chain" designates data existing outside the blockchain network. Oracles are essential for developers, facilitating the incorporation of off-chain information into decentralised applications (dApps).
🇴 What are the Objectives?
The primary goal of blockchain oracles is to expand the scope of blockchain applications by integrating real-world data. Consider oracles as the enablers of automated smart contracts, capable of managing various real-world transactions. They facilitate trustless transfers of tangible assets like property, where smart contracts, once conditions are met, automatically transfer tokenised ownership deeds.
Beyond the commonly known application in decentralised exchanges (DEXs), blockchain oracles open doors to innovative use cases. They empower developers to explore new realms, from automating insurance processes based on external data to creating tokenised real estate platforms with transparent valuation data to set the trusted value of the tokenised asset.
Oracles are versatile in their data-gathering methods, pulling information from both software and hardware sources. Web data, collected through APIs on centralised crypto exchanges, and physical device data, like that from thermostats or QR scanners, are seamlessly incorporated.
🇼 Why do Oracles play a major role in the future of an increasingly digital society and the rise of Web3?
As our world becomes more digital, and Web3 emerges as an increasingly dominint paradigm, blockchain oracles become pivotal. Their significance lies in their ability to bring decentralisation into real-world scenarios.
The decentralisation of oracles is crucial in addressing the "oracle problem," a concern within the crypto community. Centralised oracles pose a risk to the decentralised nature of blockchains, creating vulnerabilities that could compromise the validity of smart contracts. In response, decentralised oracles, exemplified by projects like Chainlink, use consensus mechanisms and multiple nodes to ensure trustless data flow without a single point of failure.
Looking forward, the future of blockchain oracles is promising. Their applications extend across various sectors, from revolutionising decentralised finance (DeFi) to incentivising environmental actions through crypto rewards. They pave the way for dynamic non-fungible tokens (NFTs) and hold the potential to automate the insurance industry. Blockchain oracles are not just technological components; they are the architects shaping the bridge between our physical and digital realities.
Bonus:
This 12min video uses animation to illustrate how Chainlink is a network of people and computers that help bridge real-world data onto popular blockchains through the use of smart contracts. Enjoy!
That’s all for this week! If you have any organisations in mind that could benefit from learning about emerging technology, be sure to reach out. Educational workshops are one of many consulting services I offer.