All You Need to Know About Blockchain Oracle
Blockchain technology has gained ground in the digital world with its exceptional applications. As the world starts discovering its merits, some of its demerits also start popping up. For instance, data trading within the blockchain system is seamless but when it comes to exchanging between multiple blockchain networks, the process becomes challenging. This is where blockchain oracles come into play.
What is Blockchain Oracle?
Oracle acts as a bridge between blockchain networks to process external data exchange. Oracle blockchain consultants integrate a device or entity that connects the deterministic blockchain with external data. Oracles allow decentralized Web3 networks to access external data sources and advanced computing mechanisms.
With Decentralized Oracle Networks (DONs), blockchain programming becomes easy as developers can create hybrid smart contracts for both on-chain and off-chain infrastructures. The functionalities are helpful while developing decentralized applications (DApps) to solve real-world use cases and can be integrated with conventional systems to enable advanced functionalities.
How do Oracles Work?
Oracles have three main functions to perform. These include:
- Data is collected from external sources for seamless monitoring and processing
- On-chain data transmission
- Securing data in the form of smart contracts to make it accessible for end users
Once the data is stored, it becomes easily accessible through automated smart contracts.
Types of Blockchain Oracles
Below are different types of blockchain oracles based on different qualities.
- Source (software or hardware)
- Direction (inbound or outbound)
- Trust (centralized or decentralized)
A single blockchain oracle could be the combination of one or more qualities according to the application. The types of blockchain oracles are described in detail.
Software oracles – Blockchain oracles that interact with online information and process it in the blockchain. The online medium could be servers, databases, websites, etc.
Hardware oracles – Oracles that are designed to obtain and process information from hardware devices such as USB or hard drives
Centralized oracles – Centralized oracles are controlled, managed, and monitored by a centralized entity. It does not use a single source of information. Instead, multiple sources are used. One problem with a centralized system is that it is a single point of failure. Any data breach or attempt of a cyber attack can lead to ruinous circumstances for the organization
Decentralized oracles – The oracles that do not involve any third party or intermediary to control the business functions. Instead, the participants of the blockchain network validate the data and transactions through certain consensus mechanisms
Inbound oracles – Oracles that transfer data from external sources to smart contracts
Outbound oracles – Oracles that send information to external parties from smart contracts
Human oracles – The individuals that are experts in a specific field also act as oracles. Humans verify the identity and verify the process and therefore the chances of a data breach or attack are relatively low in human oracles
Contract-specific oracles – As the name suggests, contract-specific oracles work for a single smart contract. For instance, to deploy multiple smart contracts, a number of contract-specific oracles would need to be developed. However, this approach is impractical in large-scale projects
Computerized oracles – Oracles that use off-chain computations instead of on-chain computations due to financial, legal, or technical limitations
Cross-Chain oracles – Oracles that read and write data between blockchain networks.
Blockchain Oracle Use Cases
Below are some potential use cases of blockchain oracle used in various blockchain development solutions.
Decentralized Finance (DeFi): DeFi systems use blockchain oracles to obtain and process financial data related to companies and assets. For instance, to determine market trends, DeFi collects huge information from various useful sources.
Insurance Industry: Input oracles are used in the insurance industry to verify claims, enable web APIs, and access physical sensors.
NFT Marketplace: The computer enables oracles to be used to verify the random events of projects that select the winners in high-demand NFT drops.
Final Thoughts
To conclude, blockchain oracle is used in real-world applications where there are limitations in the connections of blockchain networks. High-scale blockchain software development projects need to communicate with external sources to process information and make better decisions. For that, existing blockchain business development networks have some limitations due to security concerns. Full stack Blockchain development services oracles offer a wide range of solutions for blockchain networks to streamline projects such that their integrity, security, and transparency remain intact.