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  • Writer's pictureJoy Yuan

Blockchain Oracles: The Off-chain Technology Expanding Smart Contract Potential

Updated: Sep 16, 2022

On their own, Smart contracts and their Blockchains are unable to access data from outside their network. A Smart contract frequently requires access to information from the outside world relevant to the contractual agreement to know what to do.

Blockchain oracles provide a credible solution to this limitation on the smart contract. They act as conduits that help Smart Contracts receive and verify external or off-chain information needed to trigger the execution of certain logic on the Blockchain.

To provide a clearer insight into what this technology brings to the Blockchain ecosystem, I will delve deeper into what Blockchain oracles are and how they help execute various applications and programs on the Blockchain.

What are Blockchain Oracles

Blockchain Oracles, also known as Blockchain middleware, are mechanisms the Decentralized Web3 ecosystem uses to access off-chain data sources, thereby bridging the gap between the Blockchain (on-chain) and external third-party clients and services.

These Decentralized oracle networks (DONs) create a hybrid smart contract design that merges on-chain code and off-chain infrastructure to bolster advanced decentralized applications (dApps). These decentralized applications are enhanced to interoperate with the Blockchain system and react to real-world events simultaneously.

How do Blockchain Oracles Work

Simply put, Oracles collect data using a variety of tools. The tools could be APIs, SDKs, IoT sensors, or other sources. On collating the data, the Oracle application sends the on-chain smart contract transactions containing the necessary information. The smart contracts retrieve these data from the Oracle technology and store it in its repository for easy accessibility.

Data from Stock prices can be sourced from oracles like internet APIs, while analysts can determine climate/weather conditions from physical oracles like IoT sensors. There are other types of oracles from which the Blockchain sources off-chain information.

Types of Blockchain Oracles

Blockchain Oracles offer their services through distinctive designs and types. Here's a look at the various types:

Software oracles (Inbound oracles)

Software oracles are this technology's most commonly used form because of their versatility and ubiquity. These software oracles use APIs, databases, web crawlers, and more to obtain real-world data.

Hardware oracles (Inbound oracles)

These are oracles that physically connect to computer peripherals to obtain data. As a result of its tangible nature, this oracle type is the hardest to compromise, especially compared to the software oracles. Hardware oracles receive information from IoT sensors and Radio Frequency Identification (RFID).

Outbound oracles

Outbound oracles transmit data from the Blockchain to an external party or a third-party database. This action helps to espouse interoperability.

An example is the traditional Smart Contract.

Cross-chain oracles</