What is Oracles?
Oracles are essential components within the blockchain and cryptocurrency ecosystem, providing smart contracts with access to external, off-chain data. Since blockchains are closed systems that cannot access external information by default, oracles act as intermediaries, feeding in real-time data such as asset prices, weather reports, or sports results, which allows smart contracts to make informed, conditional decisions based on real-world events.
Oracles play a critical role in decentralized finance (DeFi), where accurate and timely data, like cryptocurrency prices, is necessary for executing smart contracts in applications such as lending, derivatives, and insurance. For instance, in a lending protocol, an oracle may supply up-to-date asset values to determine collateral requirements for users.
Different types of oracles exist, including centralized, decentralized, and hardware-based oracles. Decentralized oracles, in particular, are highly valued in blockchain for their security and reliability, as they aggregate data from multiple sources to reduce the risk of a single point of failure or manipulation.
Oracles are fundamental to the expansion of blockchain utility by linking blockchain applications with real-world information, enabling a broader range of applications across finance, supply chain, insurance, and other industries that require timely and accurate external data.
