Please click the link to listen to the 46th episode of my weekly crypto podcast ‘Two Minute Crypto.’ These are intended to be short, single-topic ramblings on some aspect of the cryptosphere. Consider dropping a like and or a review on iTunes or Podbean if you enjoy the podcast. Comments and critiques welcome.
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Two Minute Crypto -Key Concepts 7 – Oracles
Welcome to Two Minute Crypto. Last week focused on Smart Contracts. This instalment discusses the closely related concept of crypto ‘Oracles’.
The guiding framework of this series is to eliminate the use of jargon and to break down crypto concepts into the simplest possible terms. These explanations are intended to form the basis of a sound introduction into the world of blockchain and cryptocurrency.
In ancient Greece, an Oracle was some-one who could read or interpret the future or the will of the gods and provide guidance to navigating whatever lay ahead. In terms of crypto, an Oracle provides a blockchain with information that facilitates a decision within a smart contract. The if A then B structure of a smart contract requires independently verifiable data in order to execute. A blockchain cannot, in itself, access real-world data but only interpret it. An Oracle, therefore, is the source that provides the information required in order for the terms and conditions of the contract to be assessed and carried out.
The blockchain which hosts a smart contract is the record keeper – the Oracle is the supplier of those records. The importance of the reliability of the supplier is obvious. If a smart contract draws information from a biased or compromised source it will nonetheless execute. The data supplied to the contract could be anything from a temperature reading to airline departure times depending on the requirements of the particular contract.
The primary challenge with Oracles is the requirement of trust – unlike a blockchain transaction – Oracles supply information which the blockchain itself cannot independently verify – it simply reacts to that data. Simply nominating a centralized authority to interpret the ‘correctness’ of information wouldn’t in itself, address the requirements of verification as that authority could and, in some cases, certainly would alter data to their own benefit.
In truth, managing this relationship between an immutable blockchain, automated smart contracts and external sources of reliable information is still in early development and the key impediment to the general rollout of smart contracts throughout the wider economy.
As it stands, a number of projects, such as Chainlink and Augur are working on creating a decentralized bridge between external suppliers of data and the blockchains into which they feed. When discussing blockchain with a skeptic, it is this area where the tech still needs years of development and where they may have a point.
Thanks for listening.
Blockchain Oracles Explained