There is a gap between the decentralized world and the centralized world. The concept of a decentralized world like blockchain is not an old concept rather it is new. For many years, the system of the world was operated on a centralized system. It is tough to adapt to the decentralized world overnight still has a lot of benefits.
In the context of blockchain networks, oracles play a crucial role in bridging the gap between the decentralized world of blockchain and the centralized world of real-world data. Oracles are connecting blockchain networks with the real world. An oracle is a third-party service or component that fetches external information and feeds it into a smart contract on the blockchain. This capability enables smart contracts to interact with real-world data. In this way, real-world decisions can be made.
Blockchain networks, like Ethereum, are deterministic systems, meaning they can only process data that exists within the blockchain itself. However, many real-world applications require external data, such as stock prices, weather conditions, sports scores, or even the outcome of events like elections. Oracles act as intermediaries that supply this off-chain data to smart contracts so that the action is done based on real-world events. Oracles come in different forms. Some oracles are centralized, where a single entity provides data to the blockchain.
Centralized oracles may be suitable for applications where data reliability and speed are not critical factors. Decentralized oracles use multiple data sources and consensus mechanisms to ensure data accuracy and reliability. These oracles aggregate data from multiple sources and feed it into the blockchain. Decentralized oracles are more secure and less susceptible to tempering.
In DeFi, oracles provide price feeds for assets, enabling decentralized exchanges, lending platforms, and derivatives protocols to function effectively. In supply chain management, oracles can verify the authenticity and provenance of goods by feeding data from sensors and IoT devices into smart contracts. Prediction markets rely heavily on oracles to settle bets and determine the outcome of events. Insurance applications on the blockchain also benefit from oracles. Insurance policies can be triggered automatically based on real-world events, such as natural disasters or flight delays, and oracles provide the necessary data to trigger these events.
~ Regards,
VEIGO (Community Mod)
I didn't know Oracle was connecting the blockchain network to the real world. Nice to know through your post.
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