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“What are Oracles in Crypto? Blockchain Oracle. Chainlink. Tellor. Band Protocol. Oracles in DeFi”
In this video we analyze the term oracles: how is this related to the blockchain world and what does it mean.
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00:00:34 What are oracles in blockchain?
00:01:38 Oracles in DeFi
What is a blockchain oracle?
Blockchains cannot collect data from the external environment and share information with it. For example, a smart cryptocurrency exchanger does not know how much a coin is worth in the market right now and at what price it should be exchanged. It is a lot like a computer that is not connected to the Internet.
Oracles are services that connect blockchains to the outside world: decentralized applications, other blockchains, marketplaces, cloud providers, IoT devices, payment and enterprise systems.
So if a smart contract needs to know how much a token is worth or what the price of a barrel of oil is, or whose bet has won in a competition it is the oracle that gives it that data.
Blockchain oracles verify the terms and conditions of smart contracts and provide them with the information they need to execute them. They are not part of the blockchain and therefore do not compromise its security – the network is still decentralized, but it has external data. Connection to external resources is through APIs.
Why do we need blockchain oracles?
The ability to access external data multiplies the functionality of smart contracts and decentralized applications.
Another important function of oracles is to transmit data in the right format so that different systems (blockchains, decentralized applications, trading platforms, IoT devices, and so on) can communicate with each other.
The Most Popular Blockchain Oracles
Despite their vulnerabilities, oracles are a highly sought-after product in the DeFi sector, required by data providers and many blockchain startups.
Many of the projects that use smart contracts are developing their own oracles. But even they need decentralized solutions for some tasks. Also, using a third-party oracle allows you to focus your energies on your core product.
Despite the demand for oracles, not too many teams are still working on them. Due to this there are several leaders on the market:
Chainlink is a recognized market leader, one of the first oracles to get far ahead of the competition.
Chainlink oracles run on Ethereum as a decentralized network of nodes under centralized management. They receive data from multiple sources and then all information is checked by a special algorithm to prevent attempts to manipulate the oracle. The Chainlink protocol has actually become the industry standard of the DeFi sector.
Chainlink has open code – the blockchain community can independently verify its security and reliability, as well as make suggestions on how to change it.
Band Protocol is another decentralized oracle, similar to Chainlink in many ways. But unlike most oracles that run on Ethereum, it runs on the Cosmos Network, a system of interconnected blockchains that should be the foundation of the decentralized Web 3.0 Internet.
Band Protocol also has a different system for interconnecting blockchains: while Chainlink aims to work through external modules, Band Protocol’s solution allows blockchains to communicate with each other directly.
Tellor is a decentralized pricing oracle that aims to become the industry standard for decentralized applications (dApps). Data is validated by validators, who receive tokens for it, but will lose them if the information used is challenged. The project is decentralized to the point where the developers have destroyed their admin key.
A decentralized blockchain oracle is a necessary mechanism for the cryptosphere to facilitate communication between smart contracts and the outside world. It is needed for the mass use of blockchain in real economy sectors, such as logistics, insurance, office administration, and others.
Without blockchain oracles, smart contracts would have to rely only on data already in their networks, which would greatly limit their capabilities. So the widespread use of oracles brings us closer to a future in which blockchain can play a more important role in everyday life. But along the way, developers of blockchain oracles have a host of issues to address to make them more secure and efficient.
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