What is Blockchain Oracle? The importance and potential of Oracle projects

• What is Blockchain Oracle?
• The Importance of Blockchain Oracle
• Oracle blockchain classification
• Classification of Oracles based on the origin of the data 
• Classification of Oracles based on the direction of information
• Classification of Oracles based on reliability 
• Outstanding Oracle Projects
• Chainlink
• Band Protocol
• API3
• The potential of the Oracle blockchain
• summary

What is Blockchain Oracle?

One limitation of smart contracts is that they cannot access data sources off-chain, like a modern computer without an Internet connection. 

However, the decentralized financial market is becoming more and more popular and many new business models are created to apply digital technology to real-life transactions. To fully exploit the potential of smart contracts requires connecting them to information outside of the blockchain .

Oracle acts as a bridge between on-chain and off-chain, providing data from the real world to Web 3.0 ecosystems , including: Price data, sports tournament results, temperature...

To better understand this concept, follow the following example: 

Suppose there are two players who want to bet on the outcome of a sports match by creating a smart contract on the blockchain. 

When the game is over, how does the smart contract know who will win and get the bet amount of both? 

This is where the power of an Oracle comes into play, which retrieves the exact match results outside of the real world and transfers it to the smart contract securely and reliably. After that, money will be sent to the winner depending on the outcome of the match. 

The importance of the Oracle blockchain

In the current era of Big data explosion, Oracles play the role of data intermediaries, allowing blockchain platforms to access and interact with off-chain data, becoming more necessary than ever. 

Blockchain Oracle helps to expand the scope of smart contracts. Some Oracles can even not only forward information to blockchains, but can also send data back to external sources. 

Moreover, they also allow decentralized applications to connect with most existing APIs to collect and verify data from different sources such as:

• Price fluctuations of tokens/coins to ensure fairness and accuracy in loan/lending transactions, asset liquidation
• Floating exchange rates for OTC markets
• Mortgage rates and liquidity for decentralized exchanges (DEXs).

In addition, Oracle is also used to randomly select lucky people in NFT airdrops, cryptocurrency or help blockchain game applications distribute rewards, match players in tournaments.

Oracle blockchain classification

There are many ways to classify the Oracle blockchain.

Classification of Oracles based on the origin of the data 

Software Oracle 

The Oracle Software (Oracle software) will process data such as: Temperature, freight prices, flight or train delays... from online sources then extract the necessary information and transfer it into the contract. smart co.

Hardware Oracle

Some smart contracts need to interact with the real world. Therefore, the Hardware Oracles are designed to collect information from the physical world and provide it to smart contracts. This information can be transferred from electronic sensors, barcode scanners and other information reading devices.

A hardware oracle is basically responsible for “converting” real-world events into cryptographic values ​​that smart contracts can understand.

Classification of Oracles based on the direction of information

Inbound Oracle

Inbound Oracle (Oracle inbound) is the type of Oracle that takes on the role of sending data from external sources to smart contracts. They can be used in automated transactions.

Outbound Oracle

In contrast to Inbound Oracle, Outbound Oracles (Oracle send out) will send information from smart contracts to the outside.

Classification of Oracles based on reliability 

Centralized Oracle

Centralized Oracles are controlled by an organization and are the sole information provider for blockchains. 

Using only one source of information can be quite risky as the effectiveness of the smart contract will depend entirely on the organization that controls that Oracle. It is this centralization that will make Centralized Oracles more vulnerable to attack. In case of any external attack, the security cannot be guaranteed.

Decentralized Oracle

The Decentralized Oracle (Decentralized Oracle) will collect information from many external sources, increasing the reliability of the data provided. Smart contracts can query multiple oracles to determine the validity and accuracy of data, so Decentralized Oracles are said to be more reliable. They are also known as consensus Oracles.

Outstanding Oracle Projects

Chainlink

Chainlink is one of the pioneering projects of the Oracle field, built on Ethereum . It provides a real-world database for smart contracts through the decentralized Oracle network. 

One of Chainlink's most popular services is price aggregation, which uses nodes to provide off-chain data to the crypto space.

Chainlink has just had a very successful 2021 with great developments. It can be said that in the near future, Chainlink will continue to lead the race of Oracle projects in the cryptocurrency world. 

The number of projects in the Chainlink ecosystem that has surpassed 1000 is the clearest proof of the above statement.

Band Protocol

Band Protocol is an Oracle network running on the Cosmos blockchain. It was created to serve the needs of decentralized financial applications to access and verify data off-blockchain. The long-term goal that the protocol is pursuing is to create an “internet for blockchains”.

Band is famous for its cross-chain Oracle solution, which can pull data from any API into Dapps. Band's input data are all reliable sources from many independent parties. 

BandChain is operated by Proof of Stake consensus mechanism . Holders of the protocol's BAND token will be involved in Band governance.

API3

API stands for Application Programming Interface. Traditional APIs are often incompatible with decentralized finance applications. Many online businesses now use APIs to provide their data as a service module for a fee. 

API3 is a protocol used to connect Dapps with different API libraries, allowing smart contracts to access and exchange data with the outside world through existing API services.

Thanks to API3, Dapp developers can integrate data services into their applications. This improves the efficiency of software construction in terms of both cost and construction time significantly.

While many of API3's competitors can solve the problem of connecting blockchains to the real world through Oracle, Oracle is just a form of middleware that sits between APIs and smart contracts thus increasing extra cost. API3 intends to solve this problem by allowing API providers to operate their own nodes.

The potential of the Oracle blockchain

Currently, blockchain technology has affirmed its important role in the development of the digital economy. Meanwhile, smart contracts still have many limitations and have not really brought into full play their application. This is because they cannot directly connect to the latest real-world data. 

This has led to the explosion of Oracle platforms on the blockchain. The fact that more and more projects with new ideas need to connect external data to decentralized financial applications will make Oracle platforms more room for future development. 

More than that, for blockchain technology to maintain a sustainable impact on various industries, they need to communicate accurately and timely with real-world data. This can be an important reason for the long-term development of Oracle projects.

summary

Oracle blockchain platforms are used in many fields such as: DeFi, NFT, Gaming... They have provided a solution for the Web 3.0 ecosystem that can connect with existing information systems, data sources. Latest and advanced calculations. With the current speed of digitizing the economy, the future for the Oracle market in particular and the cryptocurrency market in general will be increasingly open. 

Hopefully, the information in the article has helped you understand the basics of the Oracle blockchain, so that you can look for potential investment opportunities.

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