487 trillion dollars of value could be brought onto blockchains. Crypto oracles are the key to bridging the real world with decentralized networks.
Similarly, a blockchain can only access the transactions recorded on its distributed ledger, which limits the number of applications that can be used without real-world information. Oracles provide this internet connection. They enable blockchains to find and access outside information for on-chain smart contracts.While oracles solve one problem for blockchains, giving them access to real-world information, they create another in the form of centralization.
Simply put, a decentralized network of millions of computers requires millions of individual hacks, but a centralized system requires one breach for millions to be affected. If blockchains were to adopt centralized oracles, this would introduce a single-point vulnerability, which counteracts everything a decentralized network is built for.Decentralized oracles solve the off-chain data problem by granting blockchains access to real-world information without introducing a single point of failure.
For example, decentralized exchanges that run on a shared protocol can provide price feeds for various assets like ether and bitcoin without a central authority. Decentralized exchanges allow individuals to swap assets directly with one another, via a shared, open ledger that no one owns, as is the case with centralized competitors like Coinbase or Kraken. The problem is that the decentralized exchanges have no way to access the current price of ether or bitcoin in terms of dollars.
But how does Chainlink offer this information without creating a centralized access point? It uses dozens of different data providers to create a single price feed. Therefore, if one of the data sources is compromised, the other 20 or so data providers are still protected and providing untampered information.
This is just one example of the way an oracle can be used. There are several other types of oracles based on the information they provide and how they collect it.Oracle systems can be distinguished from each other by their data sources, the direction the information moves, and the way the data earns user-trust.This refers to what data is being reported to the blockchain. While most data comes in a digital form, some systems collect physical data.
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