Both blockchains and smart contracts solve various problems from the centralized world. However, blockchains still cannot access important data from the outside world. In some protocols, smart contracts require such data to execute certain code. This existing problem is solved very effectively by blockchain oracles. Blockchain oracles are responsible for sending, executing and verifying data they receive from centralized sources. They then transmit it to smart contracts. We have already mentioned Blockchain Oracles in a previous lesson here.
There are several oracles on the cryptocurrency market. Which one is the best? How do they differ? Before we get to our top 10 oracles, let us look at their types and how they work.
What are oracles, and how do they collect data?
Oracles are intermediaries between the world of cryptocurrencies and the outside world. Their purpose is to collect data and transfer it between smart contracts and the off-chain source.
Blockchain Oracles collect data depending on what information developers need to feed into the network. The data can come from hardware or software sources. For example, if a particular oracle only tracks information from the network, it collects data from APIs on centralized cryptocurrency exchanges. In contrast, hardware oracles can collect data from physical devices, such as a thermostat or QR scanners.
A unique feature of such oracles is that they rely on multiple node operators. This is all to querying, validating and transferring data. Since the data received from the oracle has to go through multiple validators, the likelihood of errors is reduced.
The information thus verified is then transmitted to smart contracts in encrypted messages. If the smart contract reads them successfully, it verifies them in the blockchain.
Blockchain Oracles – types
Despite the fact that we have many types of dispatch, they all have a similar goal – the secure transmission of information from on-chain and off-chain sources. However, they do not all do this in the same way. Here are some types of oracles:
Inbound and outbound oracles. “Inbound” and “outbound” here refer to the direction of data flow in the oracle. Inbound oracles feed information into the blockchain, while outbound oracles forward data from the blockchain to an external source.
Hardware and software oracles. They refer to oracle data sources. The hardware relies on information from physical devices, while the software collects data from the network.
Decentralized and centralized oracles. Centralized oracles rely on a single, trusted source for their feed data. They can be efficient, but pose a threat to blockchains. Decentralized oracles feed data to the chain without creating a single point of failure. They use consensus mechanisms, token incentives or multiple node operators to submit data to the blockchain in a trusted way.
Computer-aided oracles. They are a relatively new creation on the market. They focus on the transfer of complex data via the blockchain. The calculations performed by this type of oracle are often very complex and complicated.
Human oracles. Yes, people can also provide data to oracles. For example, meteorologists can provide data to intelligent contract if they want to provide weather information.
Contract-specific oracles. That is, oracles that have a unique use case. If the parameters of the intelligent contract-specific oracle are fulfilled, its task is accomplished.
The most popular blockchain oracles
Many blockchain oracles are in competition with each other. They want to offer developers the best possible on-chain reliability. So, companies and developers can choose from the oracles currently on the market. Here is our top list for you to check out.
- Chainlink. The largest blockchain oracle in the cryptocurrency market. It provides off-chain data for various blockchain-based solutions, i.e. Layer 1 blockchain, Layer 2 solutions, dApps and side-chains. Chainlink Oracle was launched in 2019 with Ethereum as its foundation. Chainlink provides on-chain services for various platforms such as Compound, Avalanche and Aave. Chainlink Oracles offers high security and cross-platform functionality. It is based on two powerful pillars, such as Chainlink Verified Random Function and Chainlink Automation. The former serves as a protocol to generate a series of random values along with a cryptographic proof of value. Chainlink VRF supports smart contracts that involve unpredictable outcomes.
- Band Protocol. It is a decentralized type of blockchain oracle. The oracle was developed on the Cosmos ecosystem, which has many interoperable networks. The protocol provides us with tamper-proof data for smart contracts using BandChain. It is the public blockchain of the protocol. The BandChain validators post the request data for verification via APIs or other online sources. In the next step, the validators submit the data to the appropriate entities and users. Equally important, the BandChain protocol focuses on the flexible creation of custom oracle scripts. The Band protocol uses the Delegated Proof-of-Stake mechanism for its operation. Consequently, those validating oracle data must pledge the protocol’s own token, BAND, to retrieve the data and vote on its authenticity.
- Universal Market Access (UMA). A great oracle for developers, based on Ethereum. It provides users with smart contract templates to create financial smart contracts and synthetic assets. Moreover, the UMA platform is user-friendly. Therefore, it is a great alternative to oracles like Chainlink. UMA is also a fully decentralized and open oracle that ensures the complete integrity of the extracted data.
- Decentralized Information Asset. It is Oracle’s open source platform. It is ideally suited for the DeFi ecosystem. In its operation, it uses cryptocurrencies to provide, share and use price data that is verified by multiple participants. Appropriate channels help users create specific channels by configuring them according to their needs. Oracle’s DIA is completely free and highly scalable. DIA offers Oracle services for many blockchains, including Ethereum, Phantom, Solana, Avalanche, Polygon and Arbitrum.
- API3, which is a decentralized oracle for connecting Web3 applications to off-chain data. API3 pulls data from various marketplaces, such as cryptocurrencies, actions and commodities. Oracle also uses decentralized APIs to feed data directly. Interestingly, the Airnode software included in this Oracle enables a direct connection between blockchain applications and web APIs. The result? Airnode ensures that every API is compatible with blockchain technology. Polygon and Phantom use API3 for their operation.
- XYO Network. Oracle is also based on Ethereum. In its operation, the protocol relies on a network of decentralized and anonymous devices that capture the precise geographical information of a person or object. As a result, applications perform transactions in smart contracts that require location confirmation. XYO Network uses a proof-of-origin consensus algorithm.
- iExec RLC. A blockchain oracle dedicated to the DeFi sector. It has access to the cloud computing market. The services offered by this oracle help to connect Web2 applications with Web3 applications. The iExec RLC has many user-friendly APIs that help in creating custom oracles. Users can also rent their computing services.
- Tellor is another example of Blockchain Oracles. This is an oracle that offers us access to data outside the blockchain. This type of oracle is interesting. Tellor uses a reporter client for its operation. This is a fundamental element of the functions it offers. The reporter client operates the system with a network of reporters. Reporters search, verify and validate the data. The Tellor Oracle protocol itself is based on Spot Price and Custom Price. The former offers market data that comes from existing APIs. Custom Price, on the other hand, helps modify the data according to customer requirements.
- Nest Protocol. Oracle, which is also based on the Ethernet. It defines itself as a truly decentralized Oracle. It uses a reference system known as quote mining in its operation. It ensures the accuracy of the acquired off-chain data. The Nest protocol uses the native NEST token to run the oracle ecosystem.
- DOS Network. It is a decentralized Layer 2 oracle and supports several large blockchain networks. DOS The network provides access to real-time data feeds. As a result, it helps connect smart contracts and dApps to trusted data sources. DOS Oracle is also very fast.
Podsumowanie
Blockchain oracles play a key role in the development of blockchain technology. The off-chain data they provide helps countless industries around the world. We also know with certainty that blockchains would be limited in their capabilities without oracles.
With the development of Web3, DeFi and other decentralized applications, it will be great to see Oracle discover its full potential.
