The Endless Potential of Blockchain Oracles

Beginner’s Guide / 21.08.2020

Blockchain oracles continue to drive innovation in new and exciting ways. Oracles are third-party data monitoring protocols or hardware that provide blockchain networks access to external information. Oracles allow blockchains to be more responsive and agile to the conditions of their environment. As such, oracles are now one of the most exciting areas of blockchain development. 

Before the invention of Oracles, the blockchain and the real-world were disconnected. Smart contracts were unable to monitor real-world data in a reliable manner. This inability to access outside parameters limited the capabilities of blockchain networks greatly.

Crucially, oracles are the missing link between blockchain activities and outside parameters. In this way, any relevant data gathered from outside the blockchain can trigger smart contracts. These sensors increase the effectiveness and responsiveness of blockchains. Particularly, smart contract capabilities receive a huge boost from this upending tech. Luckily, thanks to increased adoption, oracles are now at the forefront of blockchain development. 

Oracles and Nodes

In technical terms, data sent from the oracle goes straight to the nodes. Here, the nodes complete a couple of core functions. These functions include the verification and authentication of the data received. 

Not the Data – Blockchain Oracles

Notably, Oracles are not actual data. Instead, oracles come in the form of condition monitoring sensors.  These conditions can fall into nearly any real-world use scenario. For example, you could set an oracle to trigger a smart contract if a particular candidate wins the presidential election, or if your favorite football team wins the championship. The possibilities are endless.

Oracles can provide a plethora of previously unavailable data to the network in real-time. This data commonly includes price information, the status of a payment, or even the temperature measured by a sensor. Oracles function like most smart contracts on the back-end. Users must request their service to initiate their processes. 

2-way oracles

Recently, two-way oracles have become more popular. This type of oracle can both send and receive data from the blockchain. In this way, oracles now place the security of the blockchain directly into the real world.

Different Types of Blockchain Oracles

There are three main classes of oracles in existence today. Each oracle type features unique characteristics, capabilities, and initiation qualities present during its development. Additionally, an oracle can fall into multiple categories depending on its functionality. Here are the three main classifications of oracles:

Source

The first type of oracle receives its data directly from a software protocol or piece of hardware. Software Oracles are the most common type of blockchain oracles in use today. They are easy to set up and they provide a user the ability to interact with online sources of information. This data can originate from databases, websites, or servers.

  • Hardware Oracles

Hardware oracles gather their information from external sensors set up to monitor real-world conditions. These sensors can include electronic monitoring devices, bar code scanners, and any other sensor that can capture off-chain data.

Direction of Information

The next way to classify an oracle is to look at its information flow. Does the oracle receive data from the blockchain or does it send data to the network? Depending on its functionality, it may do both.

  • Inbound Oracle

Inbound oracles transmit their data back to the blockchain to initiate a smart contract. This data can include nearly anything. To date, oracles exist that monitor temperature, weather, stock prices, sports scores, and GPS data. 

  • Outbound Oracle

Outbound oracles send data from the blockchain back out to the real world. This data is usually in the form of a protocol. A perfect example of this style of oracle can be found in smart locks. Smart locks are predetermined account lockup periods. They are associated with security token offerings and are required in many jurisdictions.

Trust

Another categorization trait one can employ to determine the class of an oracle is its level of trust. Is the oracle a decentralized protocol, or does depend on a centralized source of data? 

  • Centralized Oracles

Centralized oracles receive their information from a single entity. This information must be correct for the smart contract to initiate as planned. Consequently, centralized nodes create data reference concerns. 

  • Decentralized Oracles

In general, decentralized nodes are more reliable because they don’t depend solely on a centralized source of information. Much like a blockchain, decentralized oracles rely on a network of oracles to confirm the data before its sent to the network.

  • Human Oracles

There have been occasions where people acted as oracles to a blockchain network. This is the case whenever you introduce a high-level specialist into the equation to verify and relate outside data to the blockchain. In these cases, a blockchain identity verification protocol eliminates the chance of impersonators fouling the data

Oracles See the Future

Given their ever-growing role within the crypto space, it’s hard to imagine a future where blockchain oracles don’t take center stage. The ability to add trustless characteristics to off-chain transactions is a game-changer. 

You can expect to hear more about these exciting off-chain devices as their advantages become public knowledge. For now, you don’t need to consult an oracle to see that these blockchain instruments have a bright future ahead.

David Hamilton aka DavidtheWriter is a long time Bitcoinist and cryptocurrency journalist. Currently, he has over a thousand articles published on blockchain technology. His expertise and experience makes him one of the most reputable writers in the sector.