If you’re a DeFi enthusiast or crypto investor, then you undoubtedly want to see blockchain succeed in a vast world of markets and use-cases.
Blockchains have the potential to make significant changes to the global financial system.
We have come a long way since Bitcoin’s genesis in 2010, but we still have many obstacles to maneuver to make the DeFi dream come true.
One such problem is the blockchain oracle problem.
The Blockchain Oracle Problem refers to the fact that blockchains cannot access data from the external world and need a trustworthy method to do so.
By now, most blockchains can maintain consensus for on-chain activities. For example, verifying a signed transaction with the correct private key or that funds were sent to the correct address.
However, for blockchains to reach their fullest potential and access as many markets and use-cases as possible, they need access to off-chain data.
Two core problems need to be solved:
#1 How Do We Connect Blockchains and Off-Chain Data Sources
For example, how does a smart contract on PulseChain know what the value of ETH is on Ethereum? Or, how does Pulsechain know what the weather is like in Australia?
For example, the data provider could have financial incentives to input inaccurate prices because they could gain from liquidations.
Or the data provider could have a financial incentive to enter incorrect information about liquidity between Hex and eHex.
These two questions form the crux of the blockchain oracle problem and will be expanded upon in detail in this series on oracles.
Blockchain oracles are simply devices which facilitates the communication between a blockchain and another blockchain or between blockchain and another external data source.
Oracles have been a well-defined part of computer science for many years now. In blockchain, oracles can take many forms including:
Although blockchains take many forms, their functions remain the same: provide accurate and reliable data to wherever it needs to go.
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Connor is a US-based digital marketer and writer. He has a diverse military and academic background, but developed a passion over the years for blockchain and DeFi because of their potential to provide censorship resistance and financial freedom. Connor is dedicated to educating and inspiring others in the space, and is an active member and investor in the Ethereum, Hex, and PulseChain communities.