An oracle is a technology that connects blockchains with external real-world data. A blockchain, like Bitcoin or Ethereum, is a decentralized digital ledger that secures transactions. However, the blockchain itself cannot “see” the real world. Oracol comes to solve this problem by bringing “information from outside the blockchain” into the blockchain network to facilitate intelligent transactions and automated decisions. For example, if a smart contracts application needs the current price of gold to execute a transaction, An oracle brings this information from a trusted source and integrates it on the blockchain.
How an oracle works
An oracle acts as a bridge between the blockchain and external data, ensuring that the information brought in is secure and accurate. Below is a simplified explanation of how it works:
Request for data
A smart contract-based app requests certain real-world data, such as prices, statistics or even weather conditions.
The verification process
The oracle obtains information from multiple sources to ensure its accuracy. If, for example, for bitcoin price verification, it will access multiple exchange platforms.
Transmission to the blockchain
After verification, the oracle transmits the encrypted data to the smart contract or blockchain application.
This process provides trust and security to users, especially in the context of large transactions.
Advantages of using oracles
- Full automation: smart contracts can be executed automatically without human intervention, based on information provided by an oracle. For example, payment of an insurance premium based on weather events can be triggered automatically.
- Access to global data sources: Through an oracle, the blockchain can utilize any type of real-world data, including live news, asset prices, sports scores and more.
- Enhanced security: Thanks to encryption and multi-source verification, the risk of data manipulation is significantly reduced.
If you want to learn more about decentralized oracles (decentralized oracles), the term is explained in more detail here. Because blockchains are closed systems and cannot directly access external information, oracles act as bridges, validating and transmitting external data (such as prices, sporting events, or weather conditions) in a secure and transparent way that can be used by smart contracts. Their decentralization ensures that there is no single point of failure and that data is resistant to manipulation.
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