What Are Oracles in Crypto?
Oracles are middleware entities that connect blockchain-based smart contracts with data feeds. The data could be on anything from the weather in Spain, to the price of Bitcoin.
Without oracles, blockchains become like islands, cut off from the rest of the world and its markets. But with oracles, blockchains can interact with real-life information and respond to world events.
For example, a synthetic asset that tracks the price of a security like Tesla depends on accurate pricing data from an oracle. Other oracles provide USD price data for decentralized trading platforms offering a BTC/USD pair.
Oracles also pull data from the crypto world. If a smart contract is going to accurately govern an over-collateralized loan, then it needs accurate price data. If someone has taken out a loan using Bitcoin as collateral, an oracle will feed in data on the price of Bitcoin triggering liquidation if the price falls below the value of the loan.
The largest oracle is Chainlink which uses a decentralized network of nodes to provide data to smart contracts. There are tens of billions of dollars locked in smart contracts that use data from Chainlink and on some blockchains the protocol secures 90% of the value locked therein.
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