Blockchain technology is a distributed database that allows for the secure and transparent recording of transactions. To ensure that the information you enter into the blockchain is accurate, oracles must be used.
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What are Decentralised Oracles?
Oracles like Chainlink are entities that provide information to the blockchain, usually in a smart contract.
Smart contracts are computer programs that automatically execute predefined actions when certain conditions are met.
When data is entered into the blockchain by an oracle, it must be accurate and unbiased. Otherwise, one might disagree with the result of a smart contract. There are three types of decentralised oracles: software, hardware, and crowdsourced models.
How Do Decentralised Oracle Networks Facilitate Smart Contracts?
A smart contract is an agreement. It is signed between two or more parties capable of automatically enforcing the terms.
The smart contract must be written in a programming language which can then be compiled into bytecode to be uploaded on the blockchain network for execution. Once posted, it will exist as long as the blockchain exists since these smart contract programs are stored on the blockchain.
These smart contracts will then have access to certain information from the blockchain that can be used in its operation, hence their name. For instance, a smart contract could be used to keep track of a bet between two people, where one person thinks that a particular sports team will win and the other is convinced that the opposite will happen. The smart contract would then automatically pay out the appropriate amount of money to the winning party once the game is completed.
Smart contracts can also automate more complex processes such as issuing insurance policies or registering property titles. If you wish to use smart contracts for your insurance policies, you can go now and buy a product like Chainlink to leverage this technology.
Oracles are essential to ensure that data entered into the blockchain is accurate. Without accurate data, one might object to the result of a smart contract when using certain types of information.
Types of Decentralised Oracles
There are three types of decentralised oracles: software, hardware, and crowdsourced models.
Software-Based Models
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Software-based decentralised oracles work by providing an API (Application Programming Interface) that developers can use to get data from another application or service. This data is then used as an input for the smart contract.
Software-based decentralised oracles can be made public, where anyone can use them to get information from a third-party source on-demand or private suited more for enterprise solutions and involves signing a legal agreement before getting the data.
SmartContract is another example of a private oracle since it requires legal agreements to be signed before customers can use its service.
Hardware-Based Models
Hardware-based decentralised oracles are devices that provide information directly to smart contracts after being triggered by an external input, such as measuring temperature and placing the result into the blockchain.
This model relies on two separate hardware devices to function, one connected to the internet and another that does not need an internet connection.
A smart contract with inaccurate data would not function correctly if an event did not happen when it was supposed to, such as when one of the parties in a bet fails to fulfil their role according to the original agreement.
Oracles provide the necessary information for executing smart contracts while avoiding potential mistakes due to unsigned data.
The main benefits of using decentralised oracles are that they provide more accurate results, are tamper-proof, reliable, and are impossible to alter once submitted on the blockchain network since all the nodes would have to reach an agreement for it to be changed.
Crowdsourced Models
Crowdsourced decentralised oracles are similar to software-based ones, but instead of getting data from a centralised source, they get it from a pool of volunteers. This model is often used for events that happen sporadically and do not have an authoritative source.
The advantage of using this type of oracle is that it is more cost-effective since no single entity needs to be paid.
To run a decentralised oracle, the code that will retrieve external data must not have any bugs or vulnerabilities that an attacker could exploit to interfere with the result and submit false information on the blockchain. This risk can be mitigated if a software-based oracle is used, as these oracles are usually more secure.
Overall, decentralised oracles allow smart contracts to function correctly by using accurate data from external sources. By using this technology, businesses can save time and money while reducing the risk of fraud or errors.
Decentralised oracles are essential to facilitate smart contracts on the blockchain network. Smart contracts will only function if they have access to relevant and accurate data, which decentralised oracles provide.
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