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Why are they important

Blockchain oracles serve as intermediaries, bridging smart contracts with external information. These third-party services expand the capabilities of smart contracts by facilitating a connection between off-chain and on-chain data.

Some oracles not only transmit information to smart contracts but also feed it back to external sources, enhancing the bidirectional flow of data.

We can provide an example of a blockchain oracle:

James and Jules engage in a bet on the Celtocs vs Lavers game, entrusting their funds to a smart contract that will allocate them to the winner.

However, the smart contract, devoid of knowledge of external data, requires an oracle. This oracle, communicating with a trusted API, discerns the winning team and conveys the information to the smart contract. The contract then orchestrates the seamless transfer of funds. The inclusion of the oracle is essential to ensure a tamper-resistant operation, preventing circumvention by any participant.

Oracles can be categorized into various types:

Software Oracles:

  • Among the most common types, they interact with online information sources, relaying data to the blockchain.

  • Connected to the internet, they have the capability to provide real-time information.

Hardware Oracles:

  • These oracles engage with information sources in the physical world.

  • Information is often transmitted through electronic sensors, barcode scanners, and other devices.

Inbound Oracles:

  • Specialized in transmitting information from external sources to smart contracts.

Outbound Oracles:

  • Designed to transmit information from smart contracts to the external world.

Centralized Oracles:

  • Operated and controlled by a single entity, they serve as the sole provider of information for a smart contract.

  • However, they are susceptible to a single point of failure, making them more vulnerable.

Decentralized Oracles:

  • Offer a more robust solution by relying on multiple sources of information.

  • Smart contracts communicate with various decentralized oracles to assess the validity and accuracy of the data.

In conclusion, blockchain oracles play a fundamental role in unlocking the full potential of smart contracts, ensuring they operate seamlessly in the dynamic and interconnected world of blockchain technology. Their versatility and ability to facilitate bidirectional data flow make them a linchpin for the continued evolution of decentralized applications and systems.


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