Blockchain technology is poised to transform various industries, including finance, global trade, insurance, gaming, and more. With the potential for trillions of dollars of assets to transact on-chain, it’s increasingly crucial to connect blockchains to the real world.
This is where blockchain oracles come into play.
In this investor’s guide, we will explore the concept of blockchain oracles, their significance in the creation of the verifiable web, and the various types of oracles used in different applications.
Blockchain oracles free smart contracts from inherent limitations
Smart contracts, on their own, can’t interact with data that exists outside of their blockchain environment, presenting what is commonly referred to as “the blockchain oracle problem.”
Oracles function as the solution to this problem, facilitating the creation of hybrid smart contracts, which combine on-chain code with off-chain infrastructure. The hybrid structure enables smart contracts to access real-world data and events.
This access drastically expands the use cases of smart contracts, proving oracles are vital to the global expansion of blockchain technology.
The diverse flavors of blockchain oracles
A variety of different blockchain oracles exist, serving various needs across the blockchain industry. Let’s go over some of the most prevalent.
Inbound & outbound oracles
Inbound oracles fetch data from the real world and deliver it to the blockchain. They’re used for apps that require access to real-time data, like price feeds for DeFi platforms or odds for sports betting platforms.
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Outbound oracles, on the other hand, enable smart contracts to send commands to off-chain systems. These oracles could, for example, inform a bank’s network to make a payment
Hardware & software oracles
Hardware oracles interact directly with the physical world to gather data from external devices or sensors. These devices can range from simple temperature sensors to complex systems for tracking supply chain movements or environmental conditions. The primary function of hardware oracles is to bridge the gap between the digital and physical worlds, enabling smart contracts to execute based on real-world events and conditions.
Software oracles, in contrast, collect data from online sources, such as databases, websites, and other digital platforms. They play a crucial role in connecting blockchain systems with the vast amounts of data available on the internet, allowing smart contracts to react to information such as stock prices, election results, or online transaction outcomes.
Current examples of oracle projects
A robust roster of oracle providers are currently serving the Web3 industry. Here is a brief overview of providers that expand across multiple ecosystems that you should be aware of:
Chainlink
Chainlink is the industry-standard decentralized computing platform powering the verifiable web. Chainlink has safeguarded over $17.3 billion in total value secured (TVS) on-chain by providing financial institutions, startups, and developers worldwide with access to real-world data, off-chain computation, and secure cross-chain interoperability across any blockchain. Chainlink powers verifiable applications and high-integrity markets for banking, DeFi, global trade, gaming, and other major sectors.
Switchboard
Switchboard is an exciting project creating waves in the Solana blockchain ecosystem. With a TVS of $700 million as of the time of writing, Switchboard’s architecture delivers on-demand and push-based data feeds, making it essential for projects building around the DeFi, gaming, and NFT spaces. Another feature of Switchboard is its ability to allow developers to customize their interactions with data, ensuring a fit for different project requirements. Additionally, Switchboard includes a secret management mechanism to guarantee sensitive data is properly secured in smart contracts. Beyond Solana, Switchboard envisions an interoperable multi-chain oracle future, with support for Aptos, Sui, Starknet, CoreDao, and Arbitrum already in place, as well as support for additional chains such as Ethereum, Optimism, Monad, Eclipse, and more in the pipeline.
Gora
Tens of thousands of businesses are beginning to use sensor and IoT data to verify reports and share information, especially in areas like manufacturing, logistics, and environmental monitoring. Gora stands at the forefront of integrating sensor and IoT data within the blockchain ecosystem, aiming to capture significant market share in these rapidly growing markets. Furthermore, Gora is utilizing Decentralized Physical Infrastructure Network (DePIN) technologies to create unique verifiable credentials (VC) functionality, which is expected to have a significant impact on everything from decentralized KYC and anti-money laundering processes to verification of source of goods and creative content.
Flare
Flare is an EVM-compatible “blockchain for data,” specifically designed to support the intensive data demands of emerging use cases, including machine learning and DeFi with real-world assets. Google Cloud and InfStones are the latest additions to the Flare family, responsible for both securing the network as validators and contributing to the network’s decentralized data oracles. Enshrining oracles at the network layer in this manner means they inherit the security and decentralization of layer 1. This enables Flare to offer builders decentralized access to the broadest range of low latency data, at scale, and for minimal cost – supporting the development of more sophisticated dapps with greater real-world relevance.
Stork
Stork Network is a high-performance, modular oracle that pioneered a hybrid oracle architecture and can provide data updated at the millisecond level to decentralized exchanges and other partners. It combines off-chain data gathering with cryptographic signatures, enabling ultra-low latency and prioritizing data reliability and verifiability on-chain. Stork provides an extensive data catalog, including specialized feeds like index and mark prices, and prides itself on its resilient uptime. Interoperability is another critical feature of Stork’s technology, with prices signed in a manner compatible across different blockchains. In Q4 2023, Stork secured over $43 billion in volume across decentralized derivatives. Stork’s collaboration with the Sui Foundation also underlines its commitment to enhancing the DeFi derivatives market.
Real-world use cases for blockchain oracles
Today, oracles carry unique features designed for specific application areas outside their most common use cases. But even more exciting is what’s coming next for oracles. Here are some examples of how oracles are impacting the world through real use cases today, as well as what the future holds for the technology.
Gora’s impact on traditional industries
Gora’s focus on IoT data makes it well-optimized for traditional industries like automotive, logistics, and oil and gas. As means of production have grown increasingly complex, with much of the processes across these industries happening out of sight, consumers, regulators, and investors are pushing companies for more transparency.
Gora’s distributed node network is designed to accelerate and enhance the digital transformation of organizations by offering the essential tools for executing bespoke use cases required by these entities, significantly reducing the time and costs associated with getting started. Whether an oil and gas company wants to track carbon emissions or a boat manufacturing company verifiably wants to improve its processes with better data, Gora’s platform serves as the foundational layer upon which these applications can be developed.
Flare enabling data-driven dapps
Flare has amassed a thriving ecosystem, boasting over 150 partners and builders across the NFT, DeFi, and metaverse sectors of Web3. Pangolin, for example, is a decentralized digital assets exchange (DEX) that facilitated over $15 billion in trading volume in its first year. Elliptic offers the world’s largest blockchain identity dataset, enabling the world’s leading organizations to gain a holistic view of risk in crypto ecosystems to manage risk and detect crime.
Switchboard’s versatility across sectors
Switchboard enables on-demand and push-based data feeds, making it perfect for prediction markets using weather and sports data, for example.
The team has recently deployed its Switchboard Randomness Service (SRS), enhancing the integrity (through on-chain verification) of randomness-based products including gaming and potentially sensitive applications like gambling. Notably, it’s currently being leveraged in Famous Fox Federation’s Fortuna application, a collection of on-chain games where users can spend SOL to win prizes.
What’s next for oracles
One of the most promising applications of blockchain oracles lies in driving sustainability initiatives. By supplying environmental data to smart contracts, oracles play a pivotal role in fostering eco-friendly behaviors. For instance, individuals could receive incentives for engaging in environmentally sustainable practices, such as reducing energy consumption or participating in recycling programs.
In the real estate domain, blockchain oracles are revolutionizing traditional processes. They’ll direct the submission of crucial legal documents to smart contracts, streamlining transactions, and reducing manual errors. They also have the power to greatly improve access to real-time property price data by aggregating and verifying information from various sources, leading to more informed decisions and benefiting all stakeholders in real estate transactions. For example, Chainlink’s Cross-Chain Interoperability Protocol (CCIP) introduces a standard for secure and decentralized cross-chain communication, promoting further development in this domain. The Oracle landscape is evolving, and more innovative projects are emerging, with notable mentions including the Pyth Network and Chronicle. Pyth boosts DeFi applications with precise and low-latency market data from institutional sources. In contrast, Chronicle offers substantial gas fee reductions (over 60% on Layer 1 and 68% on Layer 2) and guarantees data transparency.
In the insurance industry, oracles could revolutionize process flows for end users by automating claims and payouts. In the event of an insurable incident, an oracle could automatically verify the occurrence using data from various sources, such as weather reports or car monitors. This data, once processed and confirmed by the oracle, could trigger a smart contract to initiate an insurance payout. This automation not only enhances the efficiency of claim processing but also reduces the likelihood of fraudulent claims, thereby benefiting both the insurer and the insured.
Enhancing real-world connectivity with blockchain oracles
Blockchain oracles have emerged as a critical component in linking blockchain technology with real-world applications. By overcoming the limitations of smart contracts, they empower these digital agreements to interact with and react to external data, facilitating a myriad of practical uses. From financial services to environmental sustainability, the role of oracles in broadening the scope and functionality of blockchain applications is undeniable.
Looking to develop or integrate a blockchain oracle? The InfStones platform provides unparalleled infrastructure support and expertise. InfStones is a trusted partner for many decentralized oracles and industry leaders such as Binance, Circle, OKX, Lido, and Swell. With support for over 80 blockchain protocols and frequent expansions, InfStones stands as a comprehensive resource for all your blockchain-related needs.
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Source: https://blockworks.co/news/blockchain-oracles-investors-guide