“Oracle” in the blockchain means sending data from outside the blockchain, such as daily temperature and the number of votes in elections, to a blockchain such as Ethereum, or Say such a service.
Smart contracts written on the blockchain use Oracle data to, for example, decide whether or not to pay money and to whom.
The role of “weather oracle”
Let me give you a more concrete example.
Farmers may purchase agricultural derivatives as insurance in the event of a drought that wipes out their crops. For example, if the weather is unseasonable and the crops are poorly produced, the derivative will pay the farmer a lump sum.
Oracle will allow Ethereum blockchain smart contracts to perform these tasks automatically. Smart contracts are a mechanism made possible by blockchains such as Ethereum, which are executed only when predetermined conditions are met.
For example, at the end of the crop growing season, the aforementioned “weather oracle” would notify smart contracts that it had rained less than 10 days this season. Oracle sends the information directly to the smart contract and learns that the smart contract has to pay the farmer.
Conversely, if it rains enough, Weather Oracle will inform the smart contract and no payment will be made.
What’s wrong with Oracle?
The biggest feature of blockchain is that it can execute smart contracts. Once programmed, smart contracts are in full control of the blockchain.
In other words, if the conditions stipulated in the smart contract are met, no reliable third party is required to execute the rule, and no one will prevent the execution of the transaction. Smart contracts only do what is programmed.
However, Oracle is data operated by some organization or group. Blockchains like Ethereum were created to be third-party independent, but Oracle is just a third party.
Trusting Oracle can create new problems. For example, an Oracle data source can send inaccurate data in order to favor the execution of smart contracts. Alternatively, you can hack the data and tamper with it in a favorable way.
Oracle-independent smart contracts do not have these problems. Researchers are trying to alleviate these problems and create a more decentralized, hack-resistant oracle.
Many Ethereum applications use Oracle.
For example, in the predictive market auger, participants can use future events to place bets. A bet like “Will Joe Biden win the 2024 election?”
In 2024, Auger will use the data sent by Oracle to determine if Mr Biden has won and finalize his bet.
Chainlink, a major Oracle service company, is pursuing various ways to protect Oracle from fraudulent information.
｜ Translation: Asako Arai
｜ Editing: Takayuki Masuda, Shigeru Sato
｜ Image: Viva Luna Studios / Unsplash
｜ Original: What Is an Oracle?