Thread by @SalomonCrypto

(1/20) @ethereum, Oracles and @chainlink: The Communication Layer of Web3

How do smart contracts get info from outside the Ethereum blockchain? How can a protocol interact with a web2 service? How will The World Computer integrate with The Real World?

This thread has answers!

(2/20) The problem: blockchains cannot pull in or push out data to any external system (by design). They are isolated networks - a computer without Internet.

Without internet? In 2022?!??!!

blog.chain.link/what-is-the-bl…

(3/20) Fear not! While not yet solved, the blockchain oracle problem is being dismantled. Thanks to the @chainlink team, The World Computer is no longer disconnected!

The challenge is now increasing bandwidth, latency and reliability.

(4/20) A blockchain oracle is an entity that sits between @ethereum and the outside world, moving information between the two.

An oracle is made up of two parts:

- Oracle Smart Contracts
- Oracle External Interface (Node)

(5/20) Oracle smart contracts are the code that exist within @ethereum, processing requests and coordinating between internal and external clients.

(6/20) Oracle nodes are the computers and servers that are in communication with @ethereum.

Nodes are centralized entities capable of incredibly quick and cheap computation. They are also connected to external data feeds and can publish that data on-chain.

(7/20) Oracle nodes and smart contracts achieve this two way communication by staying closely in sync and actively watching each-other across the on/off-chain barrier.

Entities on both sides have someone they can use to pass information back and forth via a robust set of APIs.

https://twitter.com/SalomonCrypto/status/1553804814508642304

(8/20) The Basic Request Model is a generalized structure for passing data on/off-chain. A client smart contract will send the oracle smart contract the API request and a $LINK payment. The oracle network bridges the message, making changes and providing data where it's needed.

(9/20) Let's say a protocol is providing synthetic exposure to the price of gold and needs a feed of the price of gold from the real world. It could use a basic request to retrieve the data.

Unfortunately, the reality is that oracle work is very expensive.

(10/20) Furthermore, while basic requests uses @chainlink's technology to send messages in and out of @ethereum, they are still only as safe and secure as the nodes they connect to.

What happens if a malicious oracle node changes the price of gold before it publishes it?

(11/20) It's not just bad guys. What about a disaster scenario: server gets hacked, data center gets flooded, some weird configuration bricks the node forever.

There's a reason the @ethereum community is so nuts about decentralization.

(12/20) Fortunately, @chainlink has an answer: Decentralized Oracle Network (DON)

A DON combines multiple independent oracle node operators and multiple reliable data sources to establish end-to-end decentralization.

(13/20) The Decentralized Data Model combines three layers of decentralization:

- data source, gathering data from multiple well-vetted feeds
- node, relying on a network of operators
- chain, publishing data across blockchain ecosystems

(14/20) Each feed is built and funded by the community of users who rely on accurate, up-to-date data in their smart contracts.

As more users rely on and contribute to a data feed, the quality of the data feed improves.

(15/20) Here is the list of data feeds available currently. If you click through you can see performance metrics (eg how often it is updated), users, networks, etc.

data.chain.link

(16/20) While the decentralized data model has boosted the reliability and security of the oracle network, it has come at a high cost.

The most expensive part of oracle-work is paying for gas; in the vanilla decentralized data model, every node pays every time they publish.

(17/20) Fear not, the decentralized data model is just the beginning! On to the next evolution in oracle technology: Off-Chain Reporting (OCR).

OCR leverages the same decentralized principals, but moves the computational and gas-expensive work of aggregating data off-chain.

(18/20) In OCR, all nodes communicate using a peer to peer network. During the communication process, a lightweight consensus algorithm runs: each node reports its data observation and signs it. A single aggregate txn is then transmitted to the oracle smart contract.

(19/20) OCR is a huge improvement on the decentralized data model. The oracle node network can scale exponentially bigger, increasing decentralization, security and reliability.

With OCR, there will always be only 1 txn per update, regardless of network size.

(20/20) 7 years ago, @VitalikButerin launched @ethereum, giving us The World Computer.

5 years ago, @SergeyNazarov, @streamOfCo & @chainlink begin connecting The World Computer to the Internet.

Today, we have the equivalent of dial-up...

Can you even imagine the broadband-era?

https://twitter.com/SalomonCrypto/status/1554633476598484993

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