Last Updated on 3. May 2023 by Martin Schuster

In this topic, we explain, how oracles work that collect data from off-chain sources. The following figure shows the general components of such an oracle.

The schematic action flow is as follows:

1. Event occurs
2. Oracle collects data about this event
3. Oracle processes data (cleansing, aggregating, etc.)
4. Oracle submits data to smart contract
5. Smart contract decides upon the received data

But here is the problem. How can we be sure that these data are correct?

In principle, oracles can provide any type of data. But due to the limited storage capacity of current blockchains it is better to use only small chunks of data like integers, boolean or single characters that can be evaluated easily by the limited calculation capacity of a smart contract.