What is a oracle? Many blockchain applications need to interact with external data, including real and offline data. These data can be used to express the scores of sports competitions and weather conditions in real life. The blockchain is deliberately designed as a closed system to achieve safe, reliable and tamper proof transactions. Therefore, the blockchain cannot access external data, which is the role of the blockchain oracle. This article will discuss with you what the blockchain oracle is? Why do I need it?

1、 About blockchain oracle

Blockchain oracle is an application that connects external data and blockchain network. First, the oracle can work in two directions.

1. The inbound or input oracle machine extracts the external data and provides it to the smart contract.

2. Outbound or output the oracle machine to push the events occurred in the blockchain to the outside world.

Secondly, oracle machines can also be divided into hardware and software oracle machines.

The hardware oracle transfers data from the physical. For example, they can be used in supply chain operations to read data from RFID or NFC tags.

The software oracle sends offline but still digital data to the smart contract. In other words, you can use a oracle machine to extract data from websites, servers or online databases. For example, the price of a financial asset is used to issue a purchase or send an order in an encrypted transaction.

Then, we can divide the oracle into centralized and decentralized.

The centralized oracle is controlled by an entity. However, because this type of oracle depends on only one source, the operation speed is very fast. However, due to server failure, centralized oracle may lack accuracy and unavailability. Therefore, such problems as the problems generated when the psychological oracle connects external resources with the on chain network are usually called blockchain oracle problems.

This is why a decentralized web3 is needed to build a reliable, tamper proof and censor proof Internet. The oracle used to connect the external and blockchain must also be decentralized, otherwise the data we use may be inaccurate and biased.

Decentralized oracle machines use multiple data sources from distributed peer-to-peer networks. Because the network has already established a consensus on external data before sending it to the blockchain, they play a crucial role in improving security and accuracy.

2、 Why blockchain oracle is needed

There are many industry leaders cooperating with Linklink. This partnership is particularly common when connecting oracle machines to build dynamic NFTs. For example, playing the card earning collection game Aavegotchi uses the linked oracle service to assign rare attributes to existing NFT avatars. Another blockchain game, Polychain Monsters, also uses this technology to prove the randomness of its NFT packet distribution.

The oracle can also be used as a decentralized weather coverage area. Like the data-driven climate risk ecosystem Arbol, it uses the blockchain oracle to extract data in the rainfall data center of the National Oceanic and Atmospheric Administration.

Another example is the information market platform Polymarket. It uses Uma's oracle to push the bet answers to the chain, so as to more accurately distribute the rewards to the winning members.

In addition, it is also a common use case for oracle machines to include offline price feed into DeFi protocol. For example, Trader Joe integrates offline price data into Avalanche's lending platform to issue secure and scalable loans at accurate market prices.

The most popular blockchain oracle solution is Chainlink. Link, the local cryptocurrency of the project, is the number one oracle coin, with the market value of each Coingecko data reaching US $3.7 billion. Encryption companies can use link solutions if they want to connect any smart contract data on the blockchain with price data, payment providers, medical data, verifiable randomness, automation functions or external APIs.

Other top blockchain oracle solutions ranked by market value include UMA and API3. The former supports oracle integration incentive liquidity mining and DAO fundraising, while the latter provides beacons as data feeds to improve transparency, and airnodes middleware to connect web APIs to any blockchain application.

summary

The above content introduces what a blockchain oracle is and why a blockchain oracle is needed. In general, oracle provides a way for decentralized Web3 ecosystem to access existing data sources, legacy systems and advanced computing. Decentralized oracle networks (DONs) support the creation of hybrid smart contracts, where on chain code and off chain infrastructure are combined to support advanced decentralized applications (dApps). These applications can react to real-world events and interoperate with traditional systems.