Blockchain Oracles – the way of the future?

The nexus between the real world and the digital world: the interface and how to bridge it is the great barrier or thing that impedes the unlocking of the immense potential power that the blockchain technology possesses. One answer maybe found in the merging or smart contracts and an intermediary called oracles.

What Is a Blockchain Oracle?

As noted by chainlink a blockchain oracle is a secure piece of middleware that facilitates communication between blockchains and any off-chain system, including data providers, web APIs, enterprise backends, cloud providers, IoT devices, e-signatures, payment systems, other blockchains, and more. Oracles take on several key functions:

  • Listen – monitor the blockchain network to check for any incoming user or smart contract requests for off-chain data.
  • Extract – fetch data from one or multiple external systems such as off-chain APIs hosted on third-party web servers.
  • Format – format data retrieved from external APIs into a blockchain readable format (input) and/or making blockchain data compatible with an external API (output).
  • Validate – generate a cryptographic proof attesting to the performance of an oracle service using any combination of data signing, blockchain transaction signing, TLS signatures, Trusted Execution Environment (TEE) attestations, or zero-knowledge proofs.
  • Compute – perform some type of secure off-chain computation for the smart contract, such as calculating a median from multiple oracle submissions or generating a verifiable random number for a gaming application.
  • Broadcast – sign and broadcast a transaction on the blockchain in order to send data and any corresponding proof on-chain for consumption by the smart contract.
  • Output (optional) –  send data to an external system upon the execution of a smart contract, such as relaying payment instructions to a traditional payment network or triggering actions from a cyber-physical system.

Carrying out the functions above requires that the oracle system operate both on and off the blockchain simultaneously. The on-chain component is for establishing a blockchain connection (to listen for requests), broadcasting data, sending proofs, extracting blockchain data, and potentially performing computation on the blockchain. The off-chain component is for processing requests, retrieving and formatting external data, sending blockchain data to external systems, and performing off-chain computation for greater scalability, privacy, security, and various other smart contract enhancements.

For the full story

For years, the blockchain industry has been defined by the excitement around smart contracts, or tamper-proof digital agreements that automatically execute when a certain condition is met. Typically associated with blockchains like Ethereum, smart contracts allow developers to build decentralized applications or “dApps” that recreate all sorts of products without the need for a rent-seeking middleman. However, over the last year, smart contracts have begun to evolve.

The result is a hybrid  smart contracts that combine on-chain code with off-chain oracles, have taken the world by storm due to the enhanced functionality they enable for dApps. Today, hybrid smart contracts power several new use cases across dozens of industries, and the combination of blockchains like Ethereum and popular oracle networks like chainlink are now securing digital agreements that handle tens of billions of dollars in user funds.

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