May 16, 2023 • 11 Min Read

The Oracle Problem

One of the major issues with blockchain technology and smart contracts is the inability to naturally connect to external data sources. As most world data remains off-chain, blockchain networks are facing an uphill battle in generating real-world applications. The second part of the problem is blockchains need to be able to trust the validity of off-chain data and know it hasn’t been tampered with.

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Oracles alleviate the oracle problem by bridging the gap between the off-chain and on-chain worlds. Put differently, Oracles are digital entities that connect blockchain networks to different data sources. These data sources can be on-chain or off-chain; they can connect to traditional databases or application programming interfaces (APIs), as well as blockchain native sources. Similar to APIs, blockchain oracles serve as a way for different data sources to communicate between each other. Decentralized oracle networks (DONs) enable the implementation of trustless smart contracts by ensuring data availability, validity, and off-chain computation.

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Importance of Decentralization

Centralized oracles pose issues with data accuracy and susceptibility to manipulation as there is one point of vulnerability. DONs spread...

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