Blockchains are the perfect solution for managing secure and transparent transactions, but they sometimes have a major limitation. They operate independently from the outside world, which means they cannot access data from external sources without help. This is where decentralized oracles come in.
What is a decentralized oracle?
A decentralized oracle is an agent that collects, verifies, and provides real-world information, such as prices, sports scores, or temperatures, to the blockchain. What’s unique about these decentralized oracles is that they don’t operate based on a single source of information, thus eliminating the risks of manipulation or errors caused by single points of failure. Instead of depending on a centralized source, a decentralized oracle collects information from multiple sources, verifies it, and then delivers it to blockchains. This process ensures a higher level of accuracy and security.
As a bridge between the blockchain and the real world, decentralized oracles (decentralized oracles) are needed for:
- Off-chain data access: blockchains cannot access external information. Oracles solve this bottleneck.
- Increased security: Decentralized oracles reduce the risks associated with reliance on centralized sources.
- Automatic Execution: Allows smart contracts to automatically activate based on certain conditions based on external data.
Decentralized oracle : Practical applications
Decentralized oracles underpin many successful applications in the crypto space:
- Decentralized Finance (DeFi): without them, we wouldn’t have real-time prices for cryptocurrencies, stocks or other assets. These prices are vital for lending platforms, decentralized exchanges or stable currencies that hold their value.
- Insurance on the blockchain: Imagine flight insurance that pays automatically if your plane is delayed. The oracle confirms the delay and the smart contract triggers the payout.
- Prediction markets: Here, oracles bring the results of real-world events (who wins an election, the score of a match) to settle bets intelligently.
- Games (GameFi) and supply chains: From data needed for game logic, to information about a product’s location or transportation conditions, oracles link to physical reality.
Notable examples of decentralized oracles
- Chainlink (LINK)
- Band Protocol (BAND )
- Tellor
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