In blockchain, the data is flowed and stored in a blockchain network, but here’s a question: how can the data interact outside the blockchain? As the data in blockchain is considered “stored on-chain,” in other words, it’s isolated. By this the Oracle comes through, Oracle is one of improtant infrastructure in Blockchain Technology. The oracle provides the creation of hybrid smart contracts and, as a result, the data in blockchain can be accessed in real time without compromising security.
How The Oracle Works?
Oracles provide the connection between Blockchain with external system, This work by enabling smart contract to execute the input and output. The oracle come through to solving problem that limiting smart contract in a Blockchain. By the blockchain data must be stored in On chain in doing such as strong consensus validity of user transactions. So in othername a blockchain need a infrastructure that bridge the data on chain without being unexposed with outside blockchain while can interact with data outside the blockchain in Real time based on use cases.
An example use case: Larry and Bob place a bet on a sport event. They both deposit their bet money into the same smart contract.After the match ends, how does the smart contract know the winner? This requires Oracle to come through and get the data outside the smart contract and send it into the smart contract on chain.
With the data that’s delivered through oracle into smart contracts, this infrastructure plays a significant role in the Blockchain network. The outcome would be smart and would be determined by the input. The oracle operates with centralized mechanism. In other words, it’s violating the purpose of blockchain. If a single oracle goes offline, that means smart contracts can’t access data off chain and it would affect the outcomes of the entire blockchain network that requires data off chain to execute. The top 5 use cases right now for Oracle are: DeFi, Dynamic NFTs and gaming, Insurance smart contracts, Enterprise, and Sustainability.
Decentralize Oracle Network
The decentralized Oracle comes through to prevent data manipulation by combining multiple independent oracle node operators and establishing multiple data transaction sources. A good example of this is Chainlink. This provides three layers of decentralization, beginning with data sources and progressing to individual node operators and the Oracle network level, to eliminate single points of failure.starting at data sources, individual node operators, and oracle network levels.
Types of Blockchain Oracle by the mechanism
Input Oracles: Work with fetching data from real world (off-chain) and deliver through smart contract to start the consumsion, this data usually provide DeFi smart contract with financial data market in real time.
Output Oracles: This mechanism works in reverse with the input oracle. Instead of receiving the data, smart contracts send commands to off-chain systems that execute certain actions. This action would help the outside off-chain action that needs approval or validation by smart contract to deliver the result.
Cross Chain Oracles: This mechanism enables to read and write information between different blockchains. Cross-oracle enables interoperability for moving data and assets between blockchains.
Compute Enables Oracles : This works by using secure off chain computation to provide decentralized services that are impractical to do on-chain due to technical, legal, and financial constraints.
At the end, the Oracle is pretty underrated technology in development of Web 3 era. As we know it play big role in terms of keep a blockchain working and relevant to deliver value to users.
Thankyou For reading. See you in the next article -mellvin
