Better On Blockchain
Oracles
Blockchain Oracles
In this final week of “Basics of Blockchain” (for now, at least), Chris and Jay demystify the role of oracles in the world of blockchain! We’ll be returning to our typical format next week. Is there a topic you’d like us to discuss? Let us know on Twitter, Discord, or Reddit!
Blockchain oracles connect decentralized networks to the outside world. When the execution of a smart contract hinges upon data that is not stored on-chain, developers use oracles to bridge the gap. You can watch their discussion above or click below to listen to the podcast.
The Oracle Problem
The “oracle problem” has been defined a million complicated ways, but it boils down to this: if a self-executing smart contract which bases its actions off data supplied by an oracle is suddenly given bad (i.e. corrupted, tampered with, or otherwise unreliable) data, bad things happen. Refer to the literature review for content which explores the subject in greater detail.
Primary Functions of an Oracle
This article from Chainlink lists the seven primary functions of an oracle:
- Listen for inbound users or off-chain data requests.
- Extract data from one or more external sources.
- Format incoming or outgoing data for compatibility.
- Validate the performance of services.
- Compute off-chain data as necessary to execute a smart contract.
- Broadcast transactions for use in and the execution of smart contracts.
- Output data to an external systems upon the execution of a smart contract.
Different Types of Oracles
The different types of oracles can be broadly grouped by whether the data comes from a centralized or decentralized source, the source of off-chain data, and direction in which the data flows.
- Inbound/Input Oracles: send data to smart contracts from the outside world.
- Outbound/Output Oracles: send data from smart contracts to the outside world.
- Software/Deterministic Oracles: pull data from an online source (i.e. “software”). Examples of this kind of data include weather reports and travel delays.
- Hardware Oracles: pull data from a physical device (i.e. “hardware”) like an RFID or motion sensor.
- Cross-Chain Oracles: pull data from one blockchain to another blockchain (which can, in turn, enable some degree of interoperability).
- Consensus-Based Oracles: programmatically form consensus from a variety of data sources, often using prediction markets to prevent market manipulation.
Literature Review
- Blockchain Oracles
- What Is a Blockchain Oracle?
- Blockchain Oracles Explained
- What Is the Blockchain Oracle Problem?
- Blockchain Oracles Explained: Decentralized Oracles in DeFi
Episode Transcript
Token-based: a permissionless membership format in which voting rights are granted to the holders of governance tokens. These tokens can be granted by providing liquidity or proof of work (i.e. participating in a consensus algorithm). Some can even be traded on a decentralized exchange.
Share-based: a more “permissioned” (read “selective”) membership format in which prospective members must submit a proposal to join the DAO. Their submission is often accompanied by a tribute of some sort (typically some form of work or purchase of tokens). Members are issued shares upon joining the DAO; these shares confer voting rights and ownership stakes. Upon exiting the DAO, members withdraw a sum proportional to their share of ownership. Share-based membership is more often seen in clubs and charities.
