Communication is very important in any system. The basic information relay between various peripheries of a system is of the outmost importance; as one minor wrong information relay could lead to a system hack and hence, breakdown.
In blockchain, a blockchain oracle is an interface that relays transaction protocols that are intended to be automatically executed (on-chain), controlled and documented according to the terms of a smart contract and executes it off-chain. It is an interface that authenticates data input from sources, mostly executed via an Application Programming Interface (API) and the information is distributed to all concerned and connected nodes throughout the chain.
In September 2017, a whitepaper article approved by MIT was published titled “ Chainlink: A decentralised Oracle Network” . It is one of the earliest mentions of blockchain oracle in cryptography and it was channelled to handling the blockchain problem of a closed ecosystem with no communication to the real-world. About three months ago, April 2021 precisely; Chainlink released a version 2.0 of the blockchain oracle white paper that outlined the new potentials of the blockchain network which one of the main features was a decentralised off-chain computation sequence.
As an Oracle, NEST Protocol provides a creative solution for on-chain verification while working offchain, for example the prices of digital assets and “groceries”(digital services). In the NEST Network, all the data is generated on-chain: The users (miners) add a charge indemnity of a certain amount of “collateral”, and the prices they will all be collected after the verification period. NEST protocol provides information to a host of crytobased currencies. This oracle was created in 2019, this decentralised oracle was designed to distribute quota evenly on any cryptocurrency it is used on.
As a means of payment, this platform uses its token to pay those who are part of the mining process on this protocol, and it is listed in the regular token markets. This cryptocurrency is used only within the system.
NEST protocol acts by using a price prediction module that verifies information through a relay of sources. The core of Nest Oracle is: The minimum price (incentive), cycle check, price in the chain, coefficient beta. For instance, using ETH to USTD transaction;
• Any share can pass the price of what has been recognized as a contract fee, such as 1 ETH = 200USDT, and then these two assets enter the contract fee according to the price ratio. The general scale will be 10-100 ETH and will charge 1% ETH as a commission per mining and incentives will be earned on NEST.
• After the entry of the digital stock or asset you wish to purchase, a twenty five minutes validity period is timed. During this period anyone can buy ETH or USDT at this agreed price. If there are no transactions in that time, the price is automatically registered by the system. If there are no transactions within this period, transaction is marked invalid and the assets are returned.
At the end of this transaction, if any took place; the price of the block is expanded by the last one, with the seller’s quota increased at a beta scale. NEST protocol oracle tries to be as safe as possible and transparent in its price prediction, there are certain things that make the experience with this oracle something easier to scale, mainly that it manages the risks in any transaction initiated from it, follows the market price to the most current, and finally, the incentives help the connected users to benefit at the end of every transaction, as well as the blockchain as a whole.
Some examples of cryptocurrencies that use the blockchain oracle include: Ethereum, Bitcoin and Litecoin. All these are oracle-based cryptocurrencies.
One of the main functions of the blockchain oracle is to relay communication within a cryptocurrency ecosystem from real-time. It provides a network system among blockchains and data verification on other real-life sources. A hardware oracle can be seen as relaying real-time events to digital values that can be understood by smart contracts.
Some examples of data transaction by oracles to smart contracts include: the successful completion of payments on point-of-sales(POS), sensory measurements for temperature, election data computation, etc. So the oracle does the following for the blockchain:
• Acts as an information relay between the real-world and the crypto system.
• Controls and verifies data fed into the system from other real-time sources
Finally, authenticates and distributes data to all concerned nodes in the system or between ecosystems.
Constraints:
One of the major concerns of Blockchain Oracle is that if it depends on a single data source(centralised Oracle), it could result to the data source getting hacked or damaged or even tempered by the owner, such that the timestamp on transactions is no longer accurate on the smart contracts.
Decentralised oracles (concensus oracles) on the otherhand, increase the dependability of information provided by smart contracts by running verifications through an array of multiple data sources thus increasing trust among users.
However, the general issue of Blockchain Oracle is security; the oracle is not part of the security protocols of the Blockchain concensus, therefore it is still subject to certain cyber and source insecurities.
Another issue with oracle is that bugs still slow down the system and maybe this is due to the short span it has been in the system along with very few labour force to set the workpace faster.
PROSPECTS:
The prospects of a good decentralised oracle. One of those is the increased in reliability of shared data and dependability among users. Also, information is not just filtered into the Blockchain; the oracle does the job of querying, verifying and authenticating external data source from APIs before decimating it to connected nodes.
All decentralised applications depend on source data from real-time; but smart contracts cannot access these information because of Blockchain restrictions. The invention of the Blockchain Oracle was to remove this red-tapism.
Here are some of the prospect / projects based on oracle:
BAND Protocol: BAND Protocol is a cross-chain oracle that allows smart contracts to summarize and to any APIs on a scalable format.
DIA(DECENTRALISED INFORMATION ASSET): This is an open source financial information oracle that uses cryto-incentives to source for data from the real-world. It is a non-profit, Swiss-based association working as an oracle for the DeFi ecosystem. The platform provides access to crowd-verified financial service, hence providing transparent and verified market data.
Chainlink (LINK): Chainlink is an oracle that transfers data from off-chain sources to on-chain APIs. It is a decentralised oracle that supplies and manages data fed into the Ethereum ecosystem. Currently, Chainlink is one of the leading blockchain oracles in the blockchain industry with more than 50 blockchain projects and more than 100 software firms.
AP13: API3 is a DAO-based project for the creation of APIs for decentralised apps called dAPI. dAPIs are blockchain-native, decentralised API services built by combining multiple operators and operating oracle nodes without middlemen. It will setup, manage, and insure data for APIs at scale. It is a project aimed at building a transparent method of nexus among blockchains to the data provider’s APIs.
Other oracle based projects include: Final Thought, Tellor(TRB), etc.
The reason why most transactions are done on-chain is decentrality; however, all data must come from somewhere and the blockchain is designed to be a closed ecosystem. Therefore, the blockchain oracle relays information gathered from the internet, news and the real-world into the blockchain so as not to risk block-corruption on the chain. A decentralised oracle is the framework for choice of network nodes in connection to real-life data into the blockchain to enable smart contracts to reach their full potentials. If the nodes are hacked, the oracle creates a leverage on the network and carries on working, hence the other connected nodes stay unaffected.
This is my introductorypost here