What are Oracles in Crypto? (Smart Contracts NEED This)
For the notion of oracles to make sense, we’ll need to quickly review blockchains and smart contracts before answering the subject at hand.
The Blockchain is a powerful but isolated technology.
A blockchain is a decentralized network of computers that are used to maintain a continuously growing list of records, called blocks.
The purpose of blockchains is to create immutable and transparent records of transactions.
It’s like a shared Google Doc that can be edited by anyone with access, but nobody can delete or update it without everyone else’s cooperation.
It is important to note that a blockchain can not look beyond its own programming. It can’t use the internet to look for information, and it can’t even ask for it. It is simply programmed to save data and transactions.
We may, however, create smart contracts in such a manner that they rely on third-party information.
Written in the language of code, a smart contract is a digital agreement that helps to automate the terms and conditions of an agreement. It can be programmed to execute the contract automatically. For example, if someone doesn’t pay back their loan, then it will automatically transfer the agreed amount from their account to their creditor’s account. They are typically used in conjunction with other technologies, such as blockchains.
Smart contracts provide an alternative for people who cannot otherwise enter into a legally binding agreement because they don’t know each other or don’t trust each other.
Enter Stage Right. The Oracle
Let’s flash back to the 14th century BC. The most famous example of an oracle is the “Oracle of Delphi,” a priestess in ancient Greece who was consulted by people who wanted to know the future. The Oracle would answer these questions by looking into a large fire or water and giving prophecies.
In the world of cryptocurrency, “oracles” are trusted third parties that provide information to smart contracts in order for them to execute their logic and process transactions.
Oracles are important for the crypto ecosystem because they provide a bridge between the blockchain and the outside world. This ensures that the blockchain is able to interact with other systems and people without any intermediaries.
For example, they can verify whether or not someone has reached a certain age, the current market price of an asset, or the weather forecast.
In other words, oracles help make sure that transactions on the blockchain are accurate and not fraudulent.
Oracles can make money in two ways: by charging fees for their services or by creating a marketplace of data feeds which they can sell to data buyers.
In order for an oracle to be successful, they need to be trusted and provide reliable and accurate information. They are discouraged from lying because if they do, their reputation will suffer and people will be less likely to trust them in the future.
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