ORACLES, what are they and how do they work?

The continued growth of the cryptocurrency market over the past decade has helped drive the development of blockchain oracles. In their simplest and most basic sense, oracles can be considered digital entities linked to blockchain on an external platform.

Oracles are tools used in blockchain to interact in the real or physical world, hence their great usefulness and potential as they allow to produce a bridge between the cryptographic and physical planet to produce utilities that take full advantage of blockchain technology and all it has to offer.The main functionality of an oracle is to be a service through which a blockchain or a smart contract is fed with information external to the blockchain on which it is made.
And is that by means of the oracle real data is obtained from various websites and sources that also reveal sports results.
In addition, the oracle can collect and verify information from various websites to create a consensus, the oracles themselves are a source of data that informs the network of events occurring outside. This allows the smart contract to be activated in this situation to release the funds after the predetermined conditions of the consensus are met. This extends the potential of smart contracts to the real world.

Examples of oracles

Considering how many different types of off-chain resources there are today, there are now several blockchain oracles available to users. A few examples are worth noting:

  • Gateway oracles: these are by far the most widely used types of oracles in the global technology landscape today. They are designed to accumulate data from real-world (off-chain) environments and deliver it to a given network. One of the most common uses of these oracles is “Live Pricing”.
  • Exit oracles: These systems are primarily designed to allow smart contracts to send commands off-chain, allowing niche transactions to be executed. Exit oracles are most commonly used by decentralized banks as well as IoT networks.
  • Cross-chain oracles: As the name seems to allude, these unique oracles can read/write information on many different smart contracts, so data from one network can be used to trigger certain actions within another system.
  • Compute-enabled oracles: While not as common as their aforementioned counterparts, this new generation of oracles is designed to use secure off-chain information to provide users with decentralized services that would otherwise be impractical to achieve.
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The importance of oracles in blockchain.

Whether it’s loan marketplaces, decentralized insurance products, liquidity aggregators, derivatives protocols, algorithmic stable currencies or anything else, the vast majority of defi applications rely heavily on oracles, middleware entities that connect smart contracts to resources outside their native blockchains. Without oracles, blockchains are like computers without Internet access: valuable but largely powerless on the connected and interoperable front.
Often referred to as hybrid smart contracts, the combination of blockchains (immutable on-chain code) and oracles (secure off-chain data) creates a powerful synergy that sets the stage for advanced blockchain applications. Oracles allow previously closed networks to consume trusted external information and interact with legacy systems, resulting in smart contracts that can react to real-world events and integrate with established business processes.

Use cases for blockchain oracles are growing rapidly.

Due to the unique financial and technological proposition presented by blockchain oracles, smart contract developers have continuously used these platforms to create a range of decentralized applications that are capable of operating in several different domains. Some of these spaces include:

Decentralized Finance

The success of the decentralized finance industry (DeFi) relies heavily on oracles capable of providing platforms (operating within this space) with real-time financial data, especially information related to various digital assets and speculation-driven markets.

NFT and Games

Many oracles are capable of tracking changes associated with dynamic non-fungible tokens (NFTs) that can change their native characteristics based on external events, including temperature increases or decreases, time of day, and other data.

Environmental sustainability

There are oracles designed to assist hybrid smart contracts with causes related to environmental sustainability, allowing them to promote green practices through various verification techniques.In that sense, certain oracles are able to provide smart contracts with environmental data ranging from sensor recordings to images acquired from spacecraft, live AQI measurements (and everything in between).

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Input oracles play an important role in ensuring that insurance-centric smart contracts can verify the occurrence of insured events each time an individual initiates a monetary claim.

Conventional business utility

Through the use of cross oracles, traditional enterprises have the ability to transmit large volumes of data between their back-end systems and external blockchain platforms.

The Impact of Oracles on Web 3.0

From the outset, it is worth noting that oracles helped bring to life many of the fundamental philosophies underlying Web 3.0 (i.e., transparency, decentralization, among others). For example, they allow Layer 1 protocols, such as Bitcoin, Ethereum, etc., to accumulate a wide range of information from secondary and external blockchain and off-chain databases.
Such as if a regulatory body wants to ensure the veracity of someone’s identity. This can easily be done using decentralized systems, so that the regulator can simply employ an oracle to communicate with the related state’s protected controller database and ensure that the information provided is accurate.
In fact, once the person’s identity is verified, a smart contract can be implemented to automatically facilitate certain actions without the need for human intervention.


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