Oracles... What Are They? Part 1 of 2

Oracles... What Are They?

So what exactly are oracles on the blockchain? Some old lady with the power of foresight to tell you why you are here? Some company that works with databases? A highly improbable event that brings very welcome consequences? Nah, that’s a miracle. An oracle is a intermediary that provides a connection between the blockchain and the outside world.

Generally, the blockchain has no way of connecting to the real world, unless oracles are there to relay data from off chain to on chain. If that makes absolutely no sense to you, let me explain in layman’s terms by using a decentralized application which will utilize oracles.

In this example, I’m going to be using a hypothetical gambling dapp that allows for betting on sports events. For this dapp, it’s going to be very simple - allowing users to bet on sports in terms of USD. There’s a simple order book of odds and how much that’s being bet. Let’s just say I want to bet on the fact that the Golden State Warriors will NOT make the playoffs, at a 100:1 odds. This means that if you bet $100, and they miss the playoffs you would make $10,000). To complete this bet I would need a minimum of two sources of information - whether or not the Warriors make it to the playoffs, and how much ether is worth in USD (assuming you’re betting in terms of USD). Normally, we would find this information through whatever news outlets we use - but the blockchain doesn’t have access to SportsCenter, sports books, vegas odds, etc. So if the data for the playoffs are not readily accessible in the blockchain, so how are we going to get it?

That’s where oracles come in. The smart contract for the bet will call out to an oracle, which will relay data (who made the playoffs) back into the blockchain and now the smart contract can determine who won that bet. The oracle would do the same thing to get the up to date price of ether in terms of USD.

So the oracle as the news outlet that relays information to you - but what if your news outlet reports fake news? Decentralized oracles punish users who provide fake or bad information. By using this system, node providers are incentivized to provide accurate information and up to date. Nodes are rated by reliability, so unreliable nodes will used less frequently. So what cryptocurrencies exist that tackle the decentralized oracle issue? Stayed tuned to find out who are the forerunners trying to tackle this problem!

Cheers,
The Blockchain Musketeers
Follow Us!
Facebook
Instagram
Twitter
Youtube
Discord