Oracles, Creating Value by Connecting the Blockchain _ and Real World

[TR; DR]

1. Oracles enable web 3.0 to connect with the legacy system.
2. They can send data inwards or outwards.
3. Decentralized oracles distribute trust among many nodes.
4. Centralized oracles act like intermediaries. However, people can manipulate them.
5. Examples of data relayed among blockchain systems are price fluctuations and proofs of payment.

Oracles play an important role on the blockchain as they help to create communication between the real world and smart contracts. They enable web 3.0 to interact with data sources outside the blockchain system. Apart from collecting data from the legacy system, oracles can export data to sources external to the blockchain. In simple terms, oracles act like intermediaries between the blockchain based protocols and the outside world.

Without oracles, smart contracts cannot relay information to other networks. They can only communicate the data generated within their specific networks. Therefore, oracles connect the off-chain systems with the on-chain ones, thereby increasing information sharing and value creation. Nevertheless, it is important to note that oracles are not the source of the data. Instead, they query, verify and authenticate the external sources of data, then transmit the relevant information.

As such, the oracles collect and relay different types of data such as temperatures, price fluctuations, weather reports, election results or proof of payments.

In-bound and outbound oracles

Oracles can send data either ways, inwards or outwards of specific smart contracts. In-bound oracles collect data from outside the blockchain and bring it in, while outbound ones send the data to the outside world.

Centralized and decentralized oracles

As noted, we can have centralized and decentralized oracles, each with its own merits and drawbacks. Decentralized oracles deal with causes and effects rather than relying on individual relationships to enhance trustless transactions. Just like decentralized networks, they operate with many nodes, hence distributing trust among many participants. The major merits of decentralized oracles are the security and fairness which they offer to the blockchain system.

In contrast, centralized oracles operate in a similar manner as intermediaries as they are controlled by single parties. As a result, central authorities can manipulate the data which the oracles transmit.

Problems which oracles bring

The use of oracles defeats the major focus of the blockchain technology of decentralization and trustlessness. As we already know, with the blockchain system, there should be no individuals or other parties which can stop a transaction to sail through as long as the underlying conditions exist. In contrast, oracles act like intermediaries. Since they are data feeds, it implies that their owners can post inaccurate or misleading data in order to sway people from reality.

On the other side, some individuals can even hack oracles and distribute data which is incorrect.

Use cases of Oracles

The oracles perform various roles which support the blockchain system. Although there are many possibilities, let’s briefly discuss a few of the use cases.

Accessing financial data and markets: The oracles gather financial data and market information which help users and investors to make investment decisions. In the case of Gate.io, the inbound oracles collect essential data from various digital markets and feed its system. For example, they gather price information and bring them into the Gate.io derivative, NFT and spot markets. The price orcales increase capital efficiency as they aggregate market prices

Improving on-chain gaming experience: The oracles generate verifiable randomness, increasing engagement in gaming experiences. For example, they enable the variable distribution of in-game asset traits and capabilities.

They are blockchain middlewares: The orcales help blockchain systems to connect their backends securely with other networks. As a result, they enable individual blockchain systems to perform some complex logics as they deploy digital assets and data to other chains. This enables crypto corporations like Gate.io to access assets from other networks such as NFT gaming platforms.

A case of Gate.io

So far, we have discussed how the oracles are crucial to the proper functioning of the blockchain systems. Now, we want to relate to the case of Gate.io.

Gate.io provides cross-chain solutions which depend heavily on oracles. There are many assets that freely circulate within the Gate.io platform, which users access. For instance, there is inter-blockchain asset depositing and withdrawal, enabling investors to select the products and services they need. For example, there is the lending and single asset vault, where investors can provide liquidity to a single cryptocurrency. Here, they earn high APY and can withdraw their assets at any time.

Users can also add liquidity to different pairs of cryptocurrencies, thanks to the role of oracles on the exchange. As a result of Gate.io’s connection with other blockchain networks, investors can find critical data in real-time. These include the liquidity volumes and 24 hour changes in trading activities of the various cryptocurrencies and non-fungible tokens.

There is also the unveiling of promising start-ups, where users can get full details of the performances of new tokens. For example, individuals can evaluate the performance of the cryptocurrencies through analyzing their price fluctuations.

Conclusion

Oracles have revolutionized the functionalities of blockchain systems as they facilitate sharing of important data, collected from both off-chain and on-chain platforms. As a result, many blockchain based entities rely on each other and even forge partnerships.

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Author: Mashell. C, Gate.io Researcher
This article represents only the views of the researcher and does not constitute any investment suggestions.
Gate.io reserves all rights to this article. Reposting of the article will be permitted provided Gate.io is referenced. In all cases, legal action will be taken due to copyright infringement.

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