Smart contracts are one of the most ambitious projects of the 21st century and are poised to bring a sea-change in major industries and for better. They are designed to revolutionize businesses globally by providing a conducive environment for developing DAOs and DApps to automate jobs based on blockchain technology. Now, smart contracts have been around for a while; however, despite their immense value, we have not been able to witness their mass adoption in real world industries yet.
Why so?
Well, there is not one but two chief reasons behind the delay in large scale adoption of smart contracts for real-world industry use cases.
First, smart contracts don’t have access to off-chain or external world data. They need data feeds from the off-chain world to function at their full potential lest they are only limited to function as tokenization assets. It’s to note here, tokenization does not call for the use of off-chain data. But, most of the smart contracts which are meant for major industries, like derivatives, trade finance, insurance etc., require off-chain (say market data, IoT data) to process the execution. Now, the issue is blockchain’s underlying protocols strictly restrict access to real-world data which eventually prevents smart contracts from operating at their full potential in the real world.
Smart contracts are unable to push outputs right into off-chain systems. In that light, smart contracts can’t execute payment transactions in conventional fiat currencies on our age-old payment systems. The primary reason is traditional companies deem cryptocurrencies to be too risky for usage or hold on the balance sheet. Put simply, a lot of businesses aren’t that keen to sign up for smart contracts which are restricted to crypto-specific transactions only.
Oracles come to the rescue
Oracles can be defined as a cutting-edge blockchain middleware, designed to connect smart contracts with different off-chain resources. Thus, oracles are fundamental to improve the functional scope of smart contracts in regard to real-world use cases -which will eventually help the contracts to progress a notch higher.
Oracles are poised as a middle layer in between blockchain and API which translates data for blockchain. An API can be described as a particular means for communication with a specific system. However, the design of API would vary from one system to another.
Types of oracles
You will find 3 kinds of oracles today – oracles programmed from scratch, centralized oracles as well as decentralized oracles.
In regard to the first one, it’s really tedious to code up an oracle right from zero for every use case. Not only the method is inefficient and slow but it also introduces multiple vulnerabilities.
With centralized oracles, there is one single third party which sources and injects data into smart contracts. It could pose greater risk of security issues ; the centralized system also offers no means to verify accuracy of data received.
But, decentralized oracles receive data from multiple sources and hence always allows verification of authenticity of data. Most importantly, unlike centralized oracles, decentralized ones allow smart contracts to assure credible, tamper-proof and deterministic execution.
When it comes to decentralized oracles, Chainlink is certainly a trailblazer. You also have other major decentralized oracles like Band. One of the latest names in the current market of decentralized oracle is Bridge Oracle – the first public oracle for the famous Blockchain network TRON. Bridge Oracle allows accession to real-world data from various sources and also enables addition of various kinds of proof to establish authenticity of data sourced. BRG is the native token for Bridge Oracle and can be used to avail the oracle’s services at a discounted rate. Bridge Oracle also accepts payment in TRON’s native token TRX.
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