What are oracles in smart contracts?

What are oracles in smart contracts?

14.02.2023
Author: Robert Strickland
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What are oracles in smart contracts?

At the mention of the word oracle, many people probably draw a picture of some seer from the ancient world. In fact, such associations are partly true. In ancient mythology, people turned to oracles for advice or some information. So oracles in smart contracts play a similar role. In this article, we'll talk about their tasks and relevance to the blockchain industry.

  • ORACLES IN SMART CONTRACTS: WHAT ARE THEY?

If we take modern blockchains that use smart contracts, it immediately becomes clear that without additional means, they are unable to access data outside their chain. Thus, they have no access to external data to execute smart contracts in their pure form.

Oracles in blockchain are the conduits that carry information from external data sources into the blockchain. This greatly expands the scope of smart contracts and makes them more versatile.

For example, there is a smart contract that says that money will not be transferred to the seller until the buyer receives the goods. Blockchain itself is not capable of making external evaluations. Consequently, it would be impossible to determine where the goods are. That's where oracles come in. They get that information by communicating it to smart contracts.

Thanks to the use of such a mechanism, smart contracts can be used in any field. Trade, logistics, legal relations, geolocation, etc. - all of these are within the scope of oracle coverage.

  • WHY CAN'T SMART CONTRACTS EXIST WITHOUT ORACLES?

It's all about the difference between the formats of real-world and blockchain systems. Blockchains are absolutely deterministic systems, where any events are carried out according to a strict sequence. This feature allows for data integrity but severely limits the technology.

The real world is completely non-deterministic. Because of this, there are problems with transparency. But such systems are more flexible and can adapt to existing conditions.

So if you combine data from the real world and put it into a blockchain, it will kill it. A completely chaotic system cannot interact with an ordered system. Accordingly, smart contracts tied to the real world cannot exist without oracles.

  • ORACLES IN SMART CONTRACTS: USAGE AND PERSPECTIVES

Today, oracles in smart contracts are a full-fledged industry in which many startups operate. The field of intermediary systems creation increasingly attracts new developers. Some major corporations, such as Microsoft and IBM, are even interested in technology.

It is likely that in the future a universal global platform will be developed that will be able to make smart contracts work in conjunction with the real world at any level. At least, there is already interest in this area.

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