Thread by @FrancescoCiull4

🔲Blockchain Oracles

What is a Blockchain Oracle?

In a nutshell, a bridge between the blockchain and the outside world.

in this thread, based on the Chainlink documentation, I summarize the main parts to get an idea in 5 minutes.

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Table of Contents:

· definition
· decentralized oracle networks
· smart-contract problem
· oracles are bridges
· oracles + smart contracts
· critical point
· decentralized oracles
· oracle types
· oracle reputation
· reputation frameworks
· oracle use cases
· conclusion

Definition

Oracles are entities that connect blockchains to external systems.

Based on the real-world input/output, oracles enable smart contract execution.

Oracles provide a way for the Web3 ecosystem to access:
- existing data sources
- legacy systems
- advanced computations

DONs

Decentralized oracle networks (DONs) enable the creation of hybrid smart contracts.

On-chain code and off-chain infrastructure are combined to support dApps that react to real-world events and interoperate with traditional systems.

Smart contract problem

Smart contracts have a problem:
They can't inherently interact with data/ systems outside their native blockchain environment.

Data stored on the blockchain is considered on-chain, and everything else is considered off-chain.

An Oracle is a bridge

Blockchains are isolated from external systems, and this is good.

They have:
- strong consensus on transactions' validity
- prevention of double-spending attacks
- mitigation of network downtime.

But they need an Oracle to operate with off-chain systems.

Oracles + Smart Contracts

Industries benefit from combining:
Oracles + Smart Contracts.

Oracles offer a gateway to off-chain resources but still uphold valuable security properties of blockchains.

Oracles expand the types of digital agreements that blockchains can support.

The Critical Point

So now we are at a critical point:

the data delivered by oracles to blockchains directly determines the outcomes of smart contracts

So it's critically important that the oracle mechanism is correct if the agreement is to execute exactly as expected because

Decentralized Oracles

The only way to prevent (again) a centralized point of failure and establish a real end-to-end decentralization, is using Decentralized Oracle Networks that combine:

oracle node operators + reliable data sources.

Oracles types

- Input Oracles: fetch data from the real world to the blockchain

- Output Oracles: send commands from Smart Contracts to real-world

- Cross-Chain Oracles: read/write info between different blockchains

- Compute-Enabled Oracles: provide decentralized services

Oracle Reputation

Reputation in blockchain oracle systems gives users the ability to monitor/filter between oracles based on different parameters

The oracles sign and deliver their data onto a public blockchain ledger, so the performance history can be analyzed/presented.

Reputation frameworks

They provide transparency for the accuracy/reliability of each oracle network and single node operator.

Users can then decide their oracles.

Oracle service providers can leverage their reputation to provide users more guarantees of their reliability.

Oracle Use Cases

These are some of the possible use cases for the Oracles:

- Decentralized Finance (DeFi)
- Dynamic NFTs and Gaming
- Sustainability
- Enterprise
- Insurance

Conclusion

The internet has produced a significant change in the way information is exchanged.

Oracle-based hybrid smart contracts are redefining the way the company exchanges value/enforces contractual arrangements, extending the blockchain's capabilities.

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