In the spirit of broadening the overall crypto knowledge of the entire KICK.IO community, we’re putting together a small educational series on the Cardano Ecosystem. In previous posts, we already covered some of the topics that are gaining notoriety in today’s crypto landscape, such as smart contracts, staking mechanisms, and, more recently, layer 2 solutions.
In this post, however, we’ll shift our attention to a less known, but equally relevant aspect of DeFi platforms: Oracles.
What are Oracles?
Charles Hoskinson, the founder of Cardano and IOHK, hosted a live session on Youtube last December named “Oracle Special” where he introduced the topic in a brilliantly simplistic manner, he stated:
“Smart contracts are super-duper cool (…) unfortunately, smart contracts are basically blind, they can’t see the outside world. So, you need some mechanism that’s going to allow you to inject state from the outside world, information from the outside world. (…) So whether you are writing a gambling contract, a DeFi application, anything that touches the real world (…), you need some way of injecting that into the blockchain so smart contracts can operate on that, and, generally speaking, we call that an Oracle.”
In short, Oracles are the tools that provide smart contracts with data from the real world and the reason why we need them was perfectly summarized in the above-mentioned quote, smart contracts are unable to retrieve that data themselves.
However, data does not come from Oracles. They are not the source of information, but rather a connection to external data sources, with the ability to process such data and translate it into a language smart contracts can use. The companies behind Oracles are the ones in charge of finding and aggregating reliable sources of information, verifying it and making sure it finds its way into smart contracts.
Decentralization
Oracles bridge smart contracts with the real world (off-chain) and are operated by third parties, economically incentivized to keep data reliable, which provides some warranties of reliability. If providing inaccurate data results in penalization for Oracles, there is no rational reason why they would purposely present incorrect info.
However, gathering information from a single source of information directly opposes the concept of decentralization. Not only does the data become less reliable, but also more vulnerable to malicious intents.
That is why, in order to guarantee quality and timely information for smart contracts, it is always better to retrieve data from a number of Oracles. Oracle operators are then rewarded for quality service, as they can receive penalization for subpar precision, delayed data, or no data at all.
Closing Thoughts
Oracles represent a bridge between the real world and the realm of blockchain technology. Their role is truly essential in the path towards decentralization. We’ve only started to uncover the endless possibilities of smart contract functionalities. Still, one thing is certain, Oracles will play an absolutely pivotal role in the evolution of DeFi and the push towards mass adoption.
About KICK.IO
Founded by a team of DeFi and traditional finance professionals,KICK.IO is the first Initial Decentralized Offering (IDO) launchpad and project accelerator to take full advantage of the Cardano (ADA) ecosystem. $KICK supports projects launched on the Cardano blockchain and offers full support for Cardano native tokens.
We focus heavily on the decentralization ethos that is so tightly upheld by the majority of the cryptocurrency community, ensuring that the funds raised on our platform are directly sent to the project founders and that the tokens generated are distributed to holders in the same fashion.
KICK.IO ensures you have access to the best projects with the best timing, allowing for higher potential returns.
To learn more about KICK.IO visit our Website and be sure to follow us on Twitter, Telegram, Announcement channel, and Medium. The project is currently in the private sale stage, and inquiries can be sent here.
