Blockchain oracles are systems that connect blockchains to external systems, enabling smart contracts to hence execute based upon inputs and outputs from the real world. Oracles can be either centralized or decentralized.
Decentralized oracles increase the reliability of the information provided to smart contracts by not relying on a single source of truth. The smart contract queries multiple oracles to determine the validity and accuracy of the data – this is why decentralized oracles can also be referred to as consensus oracles.
Oracles expand the types of digital agreements that blockchains can support by offering a universal gateway to off-chain resources while still upholding the valuable security properties of blockchains. Major industries benefit from combining oracles and smart contracts including asset prices for finance, weather information for insurance, randomness for gaming, IoT sensors for supply chain, ID verification for government, and much more.
Oracles can be categorized into two types:
1. Smart contract oracles: Smart contract oracles are services that provide information to the smart contracts. Smart contracts are programs that can be executed on a blockchain, but they are limited in their ability to interact with the outside world.
2. External oracles: External oracles are a way to get data from outside the blockchain. They make it possible for developers to use real-world data in their blockchain applications
Oracles enable blockchain scalability and interoperability.
Oracles are needed in the blockchain world because they provide a way to interact with the real world. This allows oracles to be used to gather information from other sources, such as weather data or stock market information for example and then implemented into the blockchain. They can also be used to send messages to external systems, like a bank account or social media account. Oracles can be thought of as a bridge between the digital world and the physical world. They help to connect these two worlds together and allow you to use blockchain technology in your business or organization, therefore, bridging the gap between blockchain and the endless possibilities that it has in store.
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