Bitcoin News and Finance
Defining Oracles: Enablers of the Decentralized Finance World Skip to main content

Defining Oracles: Enablers of the Decentralized Finance World

Defining Oracles: Enablers of the Decentralized Finance World

Oracles are entities that enable various functions in blockchain structures by providing access to legacy or offchain information systems, acting as data ports for decentralized finance applications. These oracles act as information providers for tasks that require either the posting of data or require data to complete specific tasks.

What Are Oracles?

In ancient times, oracles were priests who were thought to offer advice or prophecy to people in need, seeking answers from the gods. The blockchain meaning of the word is not far off, as oracles are entities (smart contracts) that use various means to obtain information from different sources to enable the completion of tasks on top of a blockchain structure.

Oracles empower decentralized finance, bringing information from the real world to onchain processes. Without them, each blockchain would only be a silo of information, allowing programs to exclusively access data self-contained on the selected chain.

The implementation of oracles opens many use cases for decentralized finance applications. One of the most common examples is the usage of price feeds in decentralized exchanges to complete liquidations and make other kinds of calculations. Also, any task that needs information from sources outside the blockchain, like prediction markets, benefits from oracles.

Further, oracles can be used when legacy applications require data from the blockchain, transmitting the needed data for certain purposes. For example, a decentralized system might activate a card to open the door of a hotel room after a cryptocurrency payment is received.

Oracles can also facilitate the transport of data offchain to be used for heavy processing that would be unpractical to do onchain. In this case, oracles allow apps to defer the computing processes needed to complete a determined task to other systems.

Decentralizing Data Transport

While oracles are useful tools for connecting onchain apps with legacy, real-world data, they also represent a single point of failure for these apps. If the resources needed by the app are considered critical, and the oracle fails to deliver them, the task will be unfulfilled. Also, the oracle might be exploited to retrieve incorrect or altered data, which would also affect the result of this task.

Decentralized oracles propose an answer to this problem, seeking to retrieve the required data from different sources to validate and aggregate the results to deliver a valid response to the application. Chainlink is the most known decentralized oracle network, offering preexistent data feeds to allow developers to have a reference for different values.

For example, a decentralized app could use the price feed to determine the price of a determined asset or leverage the nonfungible token (NFT) floor price feed to retrieve a range of prices for an owned NFT.

The Future of Oracles in Finance

While oracles drive almost all decentralized finance applications, their usage and the issue of the “oracle problem” have been questioned by staff members of the Bank of International Settlements (BIS) in a recent bulletin.

The authors criticize the tradeoffs that embracing a fully decentralized oracle system might bring for the design of these systems, stating that “striving for the ideal of full decentralization leads to complex consensus protocols that further erode blockchain efficiency.”

However, the bulletin also explains that adding centralization to these tools might introduce trusted parties into a system whose objective is to remain trustless, stressing that due to this, “crypto-based defi is likely to remain the preserve of cryptoassets only, rather than being used for real-world assets.”

What do you think about oracles and their roles in decentralized finance? Tell us in the comment section below.

Comments

Post a Comment

Popular posts from this blog

Custodial Lightning Network Service Attack Discovered by LN ‘Newbie’ — Hacker Strikes 6 LN Custodians

On September 18, a Redditor posted to the r/bitcoin forum and explained how he discovered a way to “attack [the] lightning Network’s custodial services.” The Reddit account dubbed “Reckless Satoshi” wanted to figure out if a “discrepancy between real routing fees and service’s transaction fee can be exploited for a profit.” The researcher disclosed that he wanted to see how large the damage could be and said “it is bad.” 6 Lightning Network Custodial Services Attacked, Researcher Discloses Findings to Offenders Prior to Public Disclosure A Redditor called Reckless Satoshi published a disclosure post on r/bitcoin this past Saturday and disclosed how he had found a vulnerability with routing fees and some of the Lightning Network’s custodial services. The research attack was done in good faith and after it was complete he disclosed the bugs to the offending services before publishing his findings. Reckless Satoshi used the Lightning Network (LN) attack on six different services incl...
Post a Comment
Read more

Axie Infinity Down 40% Since Last Week’s Price High, Protocol Revenue Outshines Competitors

Last week, the game token leveraged within the Axie Infinity gaming universe skyrocketed to all-time highs, while other crypto markets remained extremely lackluster. During the last seven days, Axie Infinity’s platform token has dropped significantly in value shedding more than 12%. Meanwhile, the game platform’s smooth love potion token has slid over 8% over the last 24 hours. Axie Infinity Down More Than 40% Since All-Time High Not too long ago, the axie infinity (AXS) token was a topical conversation because it reached an all-time high on July 15. At the time, AXS managed to capture $28.93 per unit and since then it has shed 12.8% during the last seven days. The axie infinity (AXS) token is used within the blockchain-based game that involves battles between token-based creatures called “Axies.” AXS is used for the game’s governance system as well as other actions within the game. At the time of writing axie infinity (AXS) is exchanging hands for $16.70 per coin. AXS/USD on Ju...
Post a Comment
Read more

Play-to-Earn Game From Polker (PKR) Exchange Listing – Endorsed by Akon

The Play-to-Earn NFT based Polker.Game ‘s native token $PKR has been officially listed on the popular centralized exchange BitMart. Polker.game has been in the spotlight recently as Akon, the American R&B superstar and record producer gave his official endorsement of polker stating that the “game is revolutionary” and that Polker is “hands down.. the best play to earn, NFT game in the space.”. With the BitMart listing and celebrity endorsement from Akon, Polker is perfectly positioned to become a major player in the Play-to-Earn league. Watch Akon’s Video Here What is Play-to-Earn? Although not a new concept, play-to-earn has become a trending term due to the popularity of the NFT game AXIE infinity. In the past, previous play-to-earn games have also achieved success – however, thanks to the huge amount of development in the blockchain space in recent years the gaming experience is now massively improved. Play-to-Earn games are essentially free to play and open to anyone and...
Post a Comment
Read more

China to Crack Down on Copyright Infringement Through NFTs

Authorities in China are going after creators of digital collectibles based on other people’s works of art, the use of which was not authorized. The government offensive is part of a campaign to combat online copyright infringement and piracy with the participation of several departments. Regulators in China Move to Strengthen Copyright Supervision of Online Platforms The National Copyright Administration of China (NCAC) has recently launched a campaign against copyright infringement and piracy on the internet, together with the Ministry of Industry and Information Technology, the Ministry of Public Security, and the State Internet Information Office of the People’s Republic. A major objective of the initiative is to improve copyright supervision of online businesses by investigating cases involving the sale and distribution of infringing products on short video, live broadcast and e-commerce platforms, and promptly dealing with infringing content, the agency announced in a press r...
Post a Comment
Read more
Blogarama - Blog Directory