You may have heard about blockchain oracles, and today we want to explain you their ins and outs. What they are, how they work, why they are important and what can we expect in this space in the future. So without further ado, here are answers to 5 of the most frequently asked questions about blockchain oracles. Let’s roll…
1. What are blockchain oracles and how they work?
Blockchain oracles, such as those used in the Ethereum network and other blockchain platforms that support smart contracts, enable decentralized apps (dapps) to validate the conditions that smart contracts are based on. In other words, an oracle translates the information provided by an outside platform.
Oracles provide the necessary data to trigger smart contracts to execute when the original terms of the contract are met. For instance, an oracle could be an app that provides such input as temperature reading, payment completion information, price changes and so on the application in the blockchain.
In real world, an Uber-like blockchain app could use an oracle to get the information when the user has sit in the car and when he/she arrives to the destination. That data would be used to enable the running of a smart contract.
2. How important are oracles?
Oracles are very important as without them, smart contracts and therefore decentralized apps can’t run. At very least, they provided endpoints for smart contract execution.
In the mentioned Uber example, an oracle provides the information that the rider has reached its destination and that smart contract can continue, to say execute the payment (move the money from rider’s to driver’s account). A similar example could be provided for an Airbnb-like service that uses blockchain (rather than a centralized platform) — upon leaving the premises, a smart contract would be executed to move money from the person renting the apartment to the host.
3. Why can’t blockchain apps communicate with the real world without oracles?
Inside blockchain are only information of transactions or record changes. Blockchain smart contracts require an input from outside of the platform to run the decentralized application.
Blockchain is a reflection of a series of events which take place one after another in sequential order — it represents a series of transactions. Accessing information outside of the chain would require data points that are not sequential, and would therefore be impossible for blockchain to use or make sense of. This may sound limiting, but it is actually one of blockchain’s key feature of immutability.
In contrast, the “off-chain world” is non-deterministic, meaning that there is no recording of the events in the specific sequence, enabling data point generation from and at any point.
4. Which companies are leading the oracle development?
Oraclize has been an industry leader, but there are also other companies such as ChainLink and Blocksense. Also, we have major corporations like IBM and Microsoft looking to enter this market in their effort to get a slice of the blockchain pie.
As new ways to utilize blockchain are being conceived of every day, the demand will only increase. So we expect to see new middleware software models emerging to provide tools decentralized app makers would rely on.
5. Which trends should can we expect in the future?
Blockchain software development is still in its early stages and we expect to see many new companies joining the market, bringing new solutions and novel ideas to the world. We have already seen a few companies developing “blockchain to API” connections and a few working on solutions that would enable one blockchain to connect to the other, potentially bringing new use cases to the technology.
Ultimately, we look forward to see easier blockchain-to-web communication emerging in a move that would be followed by more “regular” developers adopting blockchain technologies. Standardizing those connections through familiar interfaces could enable creation of more dapps and ultimately help deliver on the promise of blockchain — to kick the middleman out of equation while making for much more efficient systems. And that’s something to look forward to.