Oracles are third-party services that Smart contracts Provide with external, real data to enable its execution based on current, verified information.
The most important thing summarized:
💡 There are different types of oracles, including software oracles that draw digital information from the Internet, and hardware oracles, which record physical data from the real world.
💡 Oracles increase the risk of security violations in smart contracts because they offer potential targets for manipulation of data.
💡 The technology of the oracles continues to develop in order to offer more efficient, safer and more reliable systems that meet the growing requirements of decentralization and automation.
In this article we research the role of Oracles in smart contracts, its different types and functions, the associated security risks as well as future developments and innovations in this area.
Introduction to Smart Contracts
In this section we shed light on the basics of smart contracts and explain why external data is crucial for your functioning.
Basics of smart contracts
Smart contracts are self -management contracts on Blockchain-Technology are based. They make it possible to digitally codify business agreements and to carry out automatically as soon as fixed conditions are met. This eliminates the need for middlemen and reduces the possibility of human errors and fraud.
Meaning of external data
For many smart contracts, access to real, external data is essential to make relevant decisions or trigger actions. This data is provided by so -called oracles, which act as a bridge between the blockchain and the outside world. The reliability and security of these oracles are crucial because they have a direct impact on the execution of the smart contracts.
What are Oracles?
Oracles are third-party services that supply blockchain smart contracts with external data. They play a crucial role by providing information from the real world that is necessary for the execution of smart contracts. This data can range from weather reports to stock prices and enable smart contracts to react to events outside of their own blockchain
There are different types of oracles that differ in their way and origin of the data. The main types include:
Centralized and decentralized oracles: Centralized Oracles are based on a single data source, while decentralized Oracles data from several sources via a network of Nodes obtain what makes you more resistant to manipulation
Software Oracles: These get data from the Internet, such as prices and other online information.
Hardware Oracles: You collect physical data from the real world with the help of sensors or other devices, e.g. temperature.
Inbound and outbound Oracles: Inbound Oracles bring data to the blockchain, while Outbound Oracles provide information from the blockchain to the outside world.
Important aspects of the role of Oracles in Smart Contracts
- Connection to the real world: Oracles provide information from outside of the blockchain, e.g. current prices of financial markets, weather data or the results of sports events. This information is crucial for many types of smart contracts based on current or future events.
- Increasing the functionality of smart contracts: Oracles gives smart contracts the ability to react to a wide range of external data and to meet their conditions accordingly. For example, a smart contract for trading with raw materials can only be carried out automatically if the price of a certain raw material reaches a defined value that an oracle provides.
- Decentality and security: A central problem with the use of Oracles is that it potentially represent a central authority that is responsible for providing data. A single source of data can be susceptible to manipulations, which could endanger the safety of the entire smart contract. Therefore, there are also decentralized oracles that consist of several sources and thus offer greater security and reliability.
- Use of Oracles in various industries:
- Finance: Smart contracts that react to the price of cryptocurrencies or other financial instruments need oracles to receive current market data.
- Insurance: In Parametric insurance, in which payments are made based on certain events (e.g. bad weather), Oracles are necessary to confirm that such an event has occurred.
- Supply chain management: Smart contracts that automate the shipping of goods require oracles to confirm that delivery has actually been carried out or that certain quality standards have been observed.
- Trustworthiness and integrity of the data: The accuracy and reliability of the data supplied by an Oracle are crucial. If the Oracle transmits false or manipulated data, this can cause the Smart Contract provide false or unwanted results. Therefore, the selection of a trustworthy and reliable oracles is of great importance.
The best Oracle cryptocurrencies
There are several cryptocurrencies and blockchain projects that deal specifically with Oracles or integrate oracles into their infrastructure. These projects offer solutions to make external data available in smart contracts on the blockchain. Here are some of the best -known cryptocurrencies and projects that use Oracles:
Chainlink (link)
- Description: Chainlink is one of the best known and most established Oracle projects in the crypto sector. It enables smart contracts to access data from outside of the blockchain on various blockchains. Chainlink has built up a decentralized network of Oracles that delivers reliable and secure data.
- function: Chainlink offers data on a variety of topics, including financial markets, weather data, sports events and more. It is the leading solution in the Oracle area and is used by many blockchain projects and defi protocols.
Band Protocol (band)
- Description: Band Protocol is another Oracle project that provides decentralized data feeds for smart contracts. Band Protocol offers a scalable and quick solution for access to external data.
- function: Volume enables developers to create custom data feeds that can then be integrated into smart contracts. The network is geared towards various blockchain platforms, such as Ethereum and Cosmos.
API3 (API3)
- Description: API3 is another project that focuses on the provision of oracles for smart contracts. API3 uses a network of decentralized APIs that make direct connections to web-APIs to bring data to the blockchain.
- function: API3 aims to create an Oracle network that operates Oracles directly from the providers of the web-APIs, which means that there is no need for intermediate dealers.
Tellor (TRB)
- Description: Tellor is a decentralized Oracle network that enables external data to be safely integrated into smart contracts. Tellor uses a network of miners that provide data and are rewarded for the validation of this data.
- function: Tellor is particularly geared towards the DEFI area and offers a solution for oracles that rely on reliable price feeds and market data.
Augur (Rep)
- Description: Augur is a decentralized platform for forecast markets that Oracles uses to verify events and their results. Although Augur was originally developed as a marketplace for predictions on Ethereum, Oracles uses it to confirm and map external events.
- function: Augur enables users to bet on the results of events by using Oracles to bring the event data from the real world to the blockchain.
Dia (dia)
- Description: DIA is a decentralized Oracle project that provides transparent, verifiable and reliable data feeds for defi and smart contract projects.
- function: Dia focuses on the provision of financial market data, which are aggregated and checked by a variety of sources. It is used by many DEFI projects that rely on precise market data.
Common questions (FAQ) about Oracles in Smart Contracts
In this section we answer the most important and most common questions about oracles in smart contracts.
Oracles are used in the insurance industry to verify real -time data, such as weather conditions or other verifiable events that are necessary to trigger insurance claims. This data enables smart contracts to automatically make payments if certain conditions are met, such as natural disasters.
Yes, Oracles can contribute significantly to improve transparency in supply chains by supplying real -time data such as location, temperature or condition of goods. This information enables companies to manage their supply chains more efficiently and ensure that the products are transported under optimal conditions.
Oracles can be integrated into smart contracts to protect copyrights by reviewing the authenticity and origin of digital goods such as works of art, music and literature. You ensure that the use of copyrighted material corresponds to the license agreements and automate the license fee.