Oracles play an essential role in the blockchain ecosystem, in particular in the exection of smart contract ( or intelligent contracts) used in decentralized applications ( Dapp S ). But what is it exactly? Imagine a smart contract as an automated program that performs shares (such as payment) when a precise condition is fulfilled. However, to operate, the contract must access data , such as the arrival of a package or a temperature variation, in order to activate its conditions. Here, the oracles intervene to provide this data .
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What is an oracle in crypto?
An oracle in crypto is a technological solution to connect a smart contract (which is confined to the blockchain environment) to the external information necessary to perform actions. Let us take the example of a farmer who subscribes to insurance to cover losses related to drought. Thanks to an oracle , weather data (such as precipitation) is accessible by the intelligent contract to automatically trigger a refund in the event of prolonged drought.
The role of oracles in decentralized finance (DeFi)
In the DeFi , the oracles provide intelligent contracts crucial information, such as asset prices, supply-chain (logistics chain), and much more. These data allow contracts to react according to real events. For example, an oracle traceability information to monitor the delivery of products in the retail (retail sale) or e -commerce .
In areas such as logistics, an oracle can point out the passage of a package in a warehouse , which allows payments to be automated. Similarly, in agricultural insurance , oracles use weather conditions to trigger automatic payments in the event of unfavorable climatic conditions.
The different types of oracles in the crypto ecosystem
Centralized oracles
Centralized orales are controlled by a single entity that provides data. Although they are easier to set up, they pose safety and reliability problems. A centralized oracle failure could come from data manipulation , service interruption or vulnerability to attacks . Since a single player controls the entire data flow, this creates a single point of failure which can compromise the integrity of the information transmitted. An example of a centralized oracle is promotable (formerly Oraclize), which offers a centralized data acquisition service. However, centralized oracles have a declining market share compared to decentralized solutions, as their centralization introduces a higher risk.
Decentralized orales? Operation, multiple sources of data
Decentralized orales , for their part, collect and process data from several independent sources, which reduces the risk of manipulation. These systems use data providers and validators to confirm the veracity of information via consensus. For example, Chainlink collects data from multiple suppliers and checks their accuracy through validators.
Entering an entrant and outgoing oracle: what differences?
Incoming oracles are oracles that provide data outside the blockchain to allow a smart contract to make informed decisions. This includes, for example, the prices of raw materials or weather conditions.
Conversely, outgoing oracles transmit information from blockchain to the outside world, triggering physical or digital actions outside the blockchain. For example, an outgoing oracle could send an order to an IoT to adjust the temperature in a building.
The main players in the oracles market in crypto
Chainlink : A full leader
Chainlink is an open-source , which means that its code is accessible to everyone and can be used and improved by the community. This platform uses multiple validators : participants who check and confirm the accuracy of the data provided to the smart contract ( smart contracts) in the blockchain. By integrating real -time data (continuous updates), Chainlink can provide information from various sectors, whether it be market prices, weather conditions, or global events.
Thanks to the functionalities of analytics (data analysis) and cloud computing (remote data storage and processing), Chainlink stores data securely, checks it, and makes it easily accessible to applications that need them, thus ensuring reliability and precision for smart contracts.
Pyth Network : Focus on the financial markets
Pyth Network specializes in the supply of high frequency data for financial markets. It is distinguished by its speed and the precision of the information it provides. Pyth is mainly an incoming and software , offering data on financial assets for DeFi , in particular on Aptos, Su and Solana . This network offers an database to process millions of requests in complex financial systems.
UMA: the decentralized oracle that secures Polymarket
UMA (Universal Market Access) is a decentralized oracle that plays an essential role in securing Polymarket in particular, an emerging online Paris platform. As an Oracle, Uma provides reliable and precise external data with blockchain, allowing Polymarket to validate the results of the events on which users are betting. UMA is based on a unique mechanism of "Data Verification Méchanism" (DVM), which allows the community to participate in the validation of the data provided. Unlike centralized oracles, UMA relies on a decentralized process where validators submit data and are encouraged to guarantee their accuracy by a system of rewards and penalties. If incorrect data is submitted, validators can be disputed, and may lose part of their bet.
This community validation system strengthens the security and integrity of online betting on Polymarket, ensuring that the results cannot be manipulated. UMA thus ensures total transparency and increased confidence, key elements for a platform like Polymarket, where data reliability is crucial for user experience.
Suppliers and validators: who are they?
In a decentralized model, it is important to distinguish data suppliers validators . Data providers are entities or sources that submit specific information, such as market prices or IoT sensor statements. Validators the other hand, are responsible for verifying the accuracy of this data.
This validation process is often based on a consensus mechanism where several validators must agree on the veracity of information. In return, the validators are paid in the form of native tokens at the Oracle, thus creating an economic model where the veracity of the data is encouraged by financial incentives.
How do oracles work in crypto?
Data collection: multiple sources
Decentralized oracles, like Chainlink , Pyth Network Or Tellor , collect data from several sources. These sources may include professional data suppliers , IOT sensors, or online APIs. Each source subjects its information to network validators to confirm their accuracy.
Validators verification and coordination
Data verification in a decentralized system is based on a consensus mechanism. Several validators submit independently of data on a specific event. The consensus is reached when the majority of validators submit identical information, which guarantees the accuracy of the data before their transmission to the intelligent contract.
Cases of use of oracles in the DeFi and beyond
Crypto oracles can be used in various sectors beyond decentralized finance:
Loan and loan protocol
In platforms like Aave Or Compound , the oracles provide market data to guarantee the solvency of borrowers. They also provide data to calculate guarantees in loan and stock management .
Automated insurance
In insurance, oracles can determine whether specific weather conditions have been reached (drought, storm) to trigger automatic payment. For example , precipitation data can be transmitted to automate compensation .
Examples in everyday life: logistics, agricultural insurance
In retail and e-commerce , oracles can ensure the traceability of shipments from warehouse to delivery.
Oracles and security: Problems and solutions
Attacks on oracles are a threat to the DeFi . However, decentralized systems reduce these risks by multiplying data sources and encouraging validators to provide exact information through stuking .
The future of oracles in crypto: towards an increasing adoption
With the growing adoption of smart contract and Big Data solutions , oracles are called upon to play a central role in data analysis . Potential applications in logistics channels , inventory management , and supply allow you to envisage an advanced integration of blockchain business information systems
Questions Fair (FAQ)
What is an oracle in crypto?
An oracle in crypto is a service to link an intelligent contract to information outside the blockchain.
What is the difference between a centralized and decentralized oracle?
The centralized oracles are controlled by a single entity, while decentralized orales are based on several data sources, thus reducing the risks of manipulation.
What are the examples of centralized oracles in the crypto industry?
Examples include promotable . These centralized oracles are declined because of their vulnerability.
Can Oracles sufficiently secure data in the DeFi ?
Yes, in particular thanks to mechanisms such as decentralization and stuking, which strengthen the reliability of the data provided.
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Yohan Uzzan
Training engineer, I quickly became interested in the field of finance. Convinced that decentralized finance has a bright future ahead of it, I participate in its democratization by developing Crypternon.
