What is a Blockchain Oracle and How to Become One?

Blockchain technology, a constantly evolving world, has seen the emergence of blockchain oracles as one of its most vital components. Understanding the role of blockchain and oracles, what an oracle is in the crypto world, and the functions of a blockchain oracle is crucial to comprehend the workings of decentralized systems and their impact on various sectors, including decentralized finance (DeFi), supply chain management, and more.

This article briefly takes you through the emergence of Oracles Smart Contracts as an efficient and transparent way to execute modern-day contracts, the meaning, importance, and types of blockchain oracles, and how to become a blockchain oracle. 

What is a Smart Contract?

Smart Contracts, a rapidly growing trend, offer an efficient and transparent way to execute modern-day contracts. They are contracts converted into code on the Blockchain. From weather risk products to Euro swap contracts, the versatility of Smart Contracts is evident in the variety of contracts they can handle. 

Why are Smart Contracts getting popular? They offer efficiency that is just not possible using a traditional contract. Under a Smart Contract, the exchange of payments happens in minutes, maybe seconds, while under a Traditional contract, it can take days for the payment to settle. However, there is a well-known issue with Smart Contracts, it's called the Oracle Problem. 

What is the Oracle Problem?

The oracle problem in the blockchain ecosystem refers to the difficulty of assessing the trustworthiness of off-chain data the oracles provide to execute smart contracts. As the blockchains cannot be altered and are secure, feeding or introducing external data sources may lead to a single point of failure. Any incorrect or manipulated data from an oracle may compromise the system’s integrity.

In simple terms, the blockchain-based Smart Contract running on the on-chain code has no idea of the real world, and it needs off-chain (not on the Blockchain) systems or Oracles to provide it with external information. Oracles offers this real-world data to execute smart contracts smoothly.

Why can’t Blockchain get the data directly from an external data provider? The blockchain design principles make it ill-suited to obtain subjective data or verify the quality of the external data. It is difficult and computationally heavy for the Blockchain to get simple information such as What is the price of Bitcoin?

What is a Blockchain Oracle?

So, what is an oracle in blockchain? Well, it is a piece of software and hardware solution off-chain (also known as a Node) that feeds smart contracts the real-world data it needs. How does it get this data? It gets the data from external data sources. One such example of reliable data from an external source is Forex and CFD data from TraderMade API. 

Now, how can the Smart Contract users be sure the data from the Oracles will be reliable and accurate? They Cannot; hence, companies such as Chainlink have built the infrastructure around the Smart Contracts that ensure data is reliable and accurate.

How do companies do this? First, they use a cluster of decentralized Oracle networks to get the data feeds rather than relying on one node or Oracle for data needs. Second, they use a rank system to highlight good and poor data providers that ensure users can make an informed decision by looking at past performance history.

Types of Blockchain Oracles

Blockchain oracles come in various forms, including software oracles that fetch data from online sources, hardware oracles that interface with physical IoT devices, and decentralized oracles that distribute data sources and validation processes across multiple nodes to mitigate risks.

How to Become a Blockchain Oracle?

Becoming a Blockchain Oracle is simple. First, you need to find reliable data sources that Smart Contracts are looking for. Then, you need to set up a node, which is a piece of software and hardware solution off-chain that feeds smart contracts the real-world data it needs.

Many companies are making it easier to write data on-chain by letting individuals set up nodes. If you are interested in providing Forex and CFD data to Smart Contracts, you can sign up with TraderMade and log in. We provide 1000 requests a month for free that are plenty to test your Oracle or Node. Then, all that is left is to start setting a price at which to fulfill requests from smart contracts.

If you need any more information on becoming a node provider or getting data into your own Smart Contract, please contact us. We are always open to suggestions and ideas, so don't hesitate to get in touch.

Looking Ahead

Blockchain technology is ever-evolving, and the need for reliable Oracle solutions is therefore bound to increase. We can expect improvements in data accuracy and expansion of the available data feeds range in the upcoming years, aiming to enhance the integration of oracles with countless blockchain networks.

Ultimately, the blockchain oracles will play a pivotal role in growing the adoption of blockchain-based systems across several sectors.