What are Oracles?
Oracles in computers refer to a mechanism that provides data inputs to a smart contract. A smart contract is a self-executing computer program that runs on a blockchain network and relies on specific data inputs, or "oracles," to determine when certain conditions are met and trigger the execution of the contract.
Oracles act as a bridge between the smart contract and the outside world, providing real-world data to the contract so that it can make decisions and execute automatically. For example, an oracle may provide the current price of a stock or the result of a sporting event to a smart contract that is designed to automatically execute a trade or pay out a bet based on the outcome.
There are several types of oracles, including centralized oracles, which are controlled by a single entity, and decentralized oracles, which rely on multiple sources of data to reduce the risk of manipulation.
Oracles are a critical component of many blockchain-based applications and are essential for enabling the creation of new types of decentralized applications and services. They provide a way for smart contracts to interact with the outside world, enabling them to access real-world data and execute automatically based on that data.
In conclusion, oracles in computers are a mechanism that provides data inputs to smart contracts. They play a critical role in enabling the creation of new types of decentralized applications and services, and they provide a way for smart contracts to interact with the outside world and make decisions based on real-world data.
Simplified Example
Think of an oracle as a helper or a teacher who gives you answers to questions you have. In the computer world, an oracle is a similar kind of helper. It provides answers to questions that a computer program might have about the real world. For example, a computer program might ask an oracle about the current weather, and the oracle would go find the answer and give it back to the program. In this way, oracles help computer programs make decisions or take actions based on information from the real world. Just like a teacher can help you make decisions or solve problems, oracles help computers do the same thing.
History of the Term "Oracles"
The term "oracle" in the realm of cryptocurrencies is thought to have surfaced in the mid-2010s with the increasing popularity of decentralized oracles. Before this period, there lacked a standardized method for linking blockchain-based applications to external data sources, encompassing real-world events, financial markets, or sensor data. The introduction of decentralized oracles aimed to bridge this gap, providing a mechanism for smart contracts and blockchain applications to access and integrate real-world information in a secure and trustless manner.
Examples
Smart Contract Oracles: A smart contract oracle is a technology that provides external data to a blockchain-based smart contract. This data can come from a variety of sources, such as a stock market price, the weather, or a social media platform. The oracle acts as a trusted intermediary, retrieving the data and delivering it to the smart contract, which can then use it to trigger certain actions, such as executing a payment or transferring ownership of an asset. An example of a smart contract oracle is Chainlink, which provides secure and reliable data to decentralized applications (dApps) built on the Ethereum blockchain.
Prediction Market Oracles: A prediction market oracle is a technology that provides real-world data to a decentralized prediction market platform. For example, a prediction market platform may allow users to bet on the outcome of a sporting event, and the oracle would provide the official result of the event to the platform, determining who won the bet. The oracle is a trusted third party that ensures the accuracy of the data and ensures that the prediction market operates fairly.
Decentralized Identity Oracles: A decentralized identity oracle is a technology that provides verifiable claims about the identity of an individual to a decentralized identity system. For example, an oracle may provide a claim about an individual's age, address, or employment status. The oracle acts as a trusted intermediary, retrieving the data from a trusted source and delivering it to the decentralized identity system, which can then use it to verify the individual's identity. Decentralized identity oracles help to ensure that decentralized identity systems are secure and reliable, and can be used to provide individuals with greater control over their personal data.