Introduction to Blockchain Oracles

Published by Mario Oettler on

Blockchains cannot access data from outside a blockchain. For that purpose, they need services that provide these data. Those services are called Oracles.

Their task is to collect data, process them, verify them and submit them to a blockchain by writing them into a smart contract or by triggering functions in a smart contract in case of a certain off-chain event.

Blockchain oracles face different problems due to the public good nature of the information they provide. They also face the challenge of ensuring that the data they provide is correct.

This creates the oracle paradox. A blockchain is a highly decentralized system that is valuable because it cannot be censored and is highly available. The downside to that is that blockchains have no way of getting trustworthy information from outside the network. This reduces the usability and value of a blockchain. Oracles solve this problem by providing data and thus enhancing the useability of the blockchain network. But at the same time, they introduce a centralized point that can be a single point of failure. This reduces the value of the blockchain as a decentralized system.