How blockchain oracles can unleash Web3’s potential
When the internet first exploded into the mainstream, one of the first lessons learned, and emphasized to younger generations, was to remain weary when claiming a domain or source of information as true and authentic – we had no idea how much obfuscation the web would create end fetus.
Although decades have passed and the Internet remains a core tool and route for interaction, the Web2 remains an unruly landscape filled with unreliable sources, fraudulent activity, and compromised sites and transactions. Web3 promises more user protection, ownership of data and security, thanks to the decentralized nature of the blockchain, but in a world where anyone can easily broadcast information and claim it as a single source of truth, how do we ensure that the blockchain actually remains open, decentralized and trustless?
The answer is distrustful oracles. They are a key component of the blockchain infrastructure stack that validates and enables smooth and seamless communication between our outside world and on-chain environments. Although we often think of the blockchain as synonymous with cryptocurrency, its use cases extend far beyond financial functions.
What is an oracle?
In the simplest terms, oracles are tools that connect blockchains to external pools of existing real-world data through enabled smart contracts. This real-world information can be anything from market prices, weather readings or location data. Smart contracts are where on-chain code and off-chain information are combined to support decentralized apps (dApps) that can then react to real-world events while interacting with traditional systems. Oracles are multifunctional and can work with different digital agreements and within different industries – their usefulness is almost limitless.
Oracles can support and authenticate information off-chain while maintaining the benefits of blockchain technologies, such as improved security. But blockchain oracles are only as good as the trusted data sources they are connected to in order to maintain accuracy and authentic decentralization. To achieve this, trustless blockchain oracles use cryptography and other incentives to establish multiple nodes that can unanimously reach consensus over shared data.
What makes something trustless?
Blockchain natives throw around the word “trustless” when referring to oracles, but what does that really mean? When an oracle is trustless, it qualifies as no longer needing the trust of a third party, which can be achieved when all participants or nodes agree on a single truth without an overarching authority or need to know and trust each other.
Unfortunately, manipulation can occur and these cases have led to exploits such as those related to Deus Finance and Solend. So how do oracles overcome the manipulation and reach a “trustless” state? Through a strict system of checks and balances, incentives for data providers to act in good faith, and financial disincentives to dissuade nefarious actors and actions.
Uses big and small cases
The oracle is particularly important for decentralized finance (DeFi) applications because blockchains have no native means of accessing data outside the chains themselves. Despite this, virtually every industry will benefit from oracles because they compile, organize and validate information securely without compromise.
Oracles can be used to improve the security of dynamic NFTs and the growing number of interactions in GameFi; ensure that patients, physicians and other authorizers such as health insurance companies and employers receive the best care while guaranteeing privacy; improve supply chain efficiency and management; source how and where goods are produced such as pharmaceuticals or foodstuffs to prevent harmful products from circulating to the masses and to validate the sustainability of goods such as clothing or household items.
These are just a few of the benefits, proving that oracles have real-world use cases apart from crypto and can significantly improve how society functions in a safer and more secure way.
How mistrustful oracles shape the fate of the metaverse
When it comes to making metaverse experiences as realistic, accurate and complementary to our personal reality as possible, oracles will be an integral tool and marker of Web3’s success.
In the metaverse, oracles serve as the solid bridge connecting the real and virtual worlds, while potentially providing enormous value by unlocking tools for dApps such as lotteries, loot boxes, randomized NFT projects, games to earn money, sweepstakes, and more. The ability to provide these services in a truly autonomous, trustless, decentralized manner will help create more robust and fair metaverse experiences across AR, AI and NFTs.
In addition, cross-chain connectivity is critical to the health of Web3 and the metaverse. Because so many applications are being developed with varied characteristics and requirements, oracles will be needed to bridge the multi-chain ecosystem and enable seamless travel from metaverse application to application. This will create a world that is truly open and easy to navigate.
Looking forward
Although the technology and its perceived contribution have evolved over the years, now more than ever, oracles enable the seamless and secure connection between real life and the vast potential of Web3. Blockchain technology can and will shape the future of commerce, self-identification, authentication, personal experiences and much more both inside and outside the metaverse.
Oracles are the ecosystem builders, and while it feels like they live as tiny microcosms in isolation, they embody something much larger that can improve life as we know it. One day we will owe our seamless digital experience to a little thing called trustless oracles.
