Preface: ⏳
In the blockchain world, oracles ( #Oracle ) play a very important role.
Blockchain is well-known for its characteristics of being tamper-proof and permanently storing data, and many industries are using these characteristics to develop new technologies. However, since blockchain networks are usually closed, external information cannot be directly obtained. It is like a sealed jar, the information inside is safe, but new things cannot be added from the outside.
This is where oracles come into play. They act like a bridge between the blockchain and the outside world, helping to securely input external data into the blockchain. Imagine an oracle as a smart messenger that brings information from the outside world into the world of the blockchain.
"Let's learn about blockchain oracles and their application scenarios" Let's continue reading 👇
⚡What is an oracle?
In the computer field, an oracle is like a super-intelligent computer. They not only have all the functions of a Turing machine, but also have a special ability: they can directly obtain answers to certain questions without performing complex calculations.
This magical process is called "Oracle". In other words, the oracle can solve some problems that even Turing machines cannot solve, such as directly obtaining external answers.
⚡Importance:
Oracles provide a path to a decentralized Web3 ecosystem where decentralization and digitization are core underlying characteristics. They are a dedicated entity that links a blockchain platform to existing external data sources to facilitate the execution of smart contracts based on real-world information.
Oracles, recognized as Distributed Oracle Network or DON, help Web3.0 clusters to seamlessly access data intersections, traditional channels, and advanced computations without any hassles. They help developers build hybrid smart contracts where a combination of on-chain code and off-chain infrastructure exists to support innovative DApp projects. While on-chain data exists within the blockchain network, off-chain data resonates beyond the ecosystem.
Companies and entities using blockchain technology are working with well-known oracle networks such as Chainlink to expand their capabilities.
Oracles play an important role in expanding the scope of operability of smart contracts. At the same time, the lack of blockchain oracles will limit the use of smart contracts. It is worth noting that oracles are not just a link between the blockchain and the outside world, they are also an infrastructure layer that improves the efficiency of the core network. Oracles query, verify, and authenticate external data resources before linking them to the requesting party. Some powerful oracle solutions can easily forward data to smart contracts while recovering it to external sources.
⚡Main application scenarios:
●Decentralized Finance: Decentralized Finance (DeFi) is one of the hottest trends in recent years. In the DeFi world, oracles play a key role, allowing people to easily obtain financial data related to assets and markets.
For example, the lending market for virtual assets uses price oracles to determine investors' borrowing capacity. These oracles help check whether investors have provided sufficient collateral and whether liquidation is required. In addition, automated market makers use price oracles to ensure that liquidity is consistent with market prices, improving trading efficiency.
●NFT and blockchain games: With the help of oracles, smart contracts are also beginning to emerge in non-financial fields, such as NFT and blockchain games. NFT is highly dynamic and vulnerable to external events.
Computational oracles help create verifiable randomness, giving NFTs their unique random characteristics. These oracles also play a key role in selecting random winners or NFT drops in games. Video games use verifiable randomness to increase the engagement and fun of the game.
●Decentralized derivatives: A derivative is a financial contract whose value is based on an underlying asset. Derivatives allow people to invest in the underlying asset with different perspectives (long-term or short-term), thus promoting financial stability. Public smart contract platforms can create and trade a variety of derivatives, including blockchain-based assets.
Oracles play an important role in the decentralized derivatives market by providing price data, settlement values, and contract expiration information to determine participants’ gains or losses.
● Smart contract insurance: In a trusted environment, insurance products can be implemented through smart contracts. For example, Etherisc’s decentralized insurance application platform provides services such as flight delay insurance and crop insurance. In this case, the oracle plays a key role in data verification and settlement.
●Decentralized prediction markets: Decentralized prediction markets, such as Augur and Gnosis, use the wisdom of the crowd to predict real-world outcomes, such as presidential election results or sports game wins and losses. If the voting results are disputed, oracles can provide a fast and secure resolution.
⚡All Oracle networks have three important functions:
● Collect data: They collect data from trusted external sources.
●Sending information: They send information on the blockchain using a signed message.
●Secure storage of data: They store data securely in the form of smart contracts so that the end users can access it easily.
Once the data is in a smart contract, other automated protocols can easily access it by referencing the information in the “retrieve” function. In addition, the data can also be used directly by Ethereum nodes or network participants, who can obtain the data by accessing the storage part of the Oracle ecosystem.