NFT and crypto token owners hear a lot about oracle crypto, but do you actually understand its functions and roles? An important part of blockchain technology, oracle makes sure that every transaction is safe, verified, and accurate. Oracle is also a useful tool for other blockchain systems, not just for crypto.
Here is everything you need to know about oracles.
Despite being a part of a decentralized system, blockchain still cannot run without a system that connects its data with external input. Oracle is the system that allows a blockchain to receive external input, allowing the blocks to process these data. The result is used to process smart contracts that are run through the blockchain.
Oracle is an important part of the decentralized ecosystem. It allows blockchain to execute commands correctly by using external data to guide the smart contracts. Oracle crypto is the most common use of this technology. However, you can find oracle technology in other fields that use decentralized blockchain ecosystems.
Oracle crypto can be programmed to execute commands based on the conditions that need to be met. For example, say that you make a casual bet with your friends about the outcome of a football. The smart contract is set to send the crypto fund to whoever guesses the right amount. To make sure that the fund is delivered to the right person, the oracle needs to feed the correct external data into the blockchain so it can perform the right protocol.
Oracle makes sure that the blockchain executes its protocol order correctly. Since protocol execution has certain requirements to meet, external data is needed to confirm it. With oracle, various tasks can be conducted on blockchain, including transferring betting funds correctly, like in the previous example.
Oracle crypto comes in various types to accommodate unique blockchain protocols. Here are the common types based on their mechanisms.
Input oracle is the most common type found on the blockchain. Its main task is to gather data from external sources and deliver them to the blockchain. The system will use those data to meet the requirements of smart contract protocols.
Unlike input oracle, the output type is the one that carries the command from the smart contract to external data. It triggers actions by external factors as a result of the tasks in the blockchain. A common example of an output oracle is the command from the blockchain to the bank network to conduct a transaction, like payments.
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What if two blockchain ecosystems need to connect to each other? Cross-chain oracle is the answer. Cross-chain oracles work on interoperability: reading, transferring, and moving data between different blockchain ecosystems to execute tasks. A common example is the transfer of crypto assets between two different blockchain systems.
Compute-enabled is the latest type of oracle, created to conduct transactions or tasks that must be done outside the blockchains. Security and safety concerns are the common reasons to conduct transactions off-chain, especially when the tasks involve personal data and important financial transactions. Using compute-enabled oracles also allow these external protocols to be conducted on a decentralized system.
Here are some more examples of how oracle is used on various blockchain platforms.
Decentralized finance relies on blockchain and oracle to conduct various financial-related commands. Oracle is used to gain information about market and price trends and borrowing capability. The oracle would easily collect information to command the smart contract protocols.
Applications that run on decentralized finance principles use an oracle to read real-world data and settle financial bets in the betting market. For example, betting market users may bet on the result of presidential elections or other big news. Once the result is out and shared widely in the media, the oracle will connect this information to the blockchain, prompting smart contracts to calculate the betting results and send the rewards to the winners.
Oracle crypto is very common among NFT traders. The oracle is responsible for changing the values, distributions, and appearances of the NFTs using external data. Oracles also work in NFT drops, creating random traits that can be verified for specific NFTs.
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In the gaming world, oracle works as a system that makes the gameplay more interesting and challenging. Using information from external data, the oracle can create verifiable random traits to create unexpected gaming elements. For example, in a tournament, oracle works to find you in random matchmaking. Oracle is also responsible for making specific players encounter random loot items or boxes.
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Enterprises that use different blockchain systems use oracles as secure middleware to perform transactions between blockchains. This way, their blockchain systems can interact and perform sophisticated protocols and permissions. Companies no longer need to create specific systems to interact with different blockchains because they can just connect through these oracles.
Oracle is important in the insurance system to verify important things such as claims. When a client makes a specific claim, the insurance system will have to fulfill the protocol request using external data about the client. This means using the oracle system to access several things at once, such as legal reports, personal data in identification forms, hospital records, and many more.
Oracle technology can be used for long-term sustainability projects. It combines green initiatives by individuals and corporations with hybrid smart contracts, creating systems that support green projects using environmental data. The oracle connects the system with satellite imagery, sensor readings, and other important environmental data sources. The results are used to create a reward system for individuals who complete certain actions in favor of a green lifestyle.
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A common example nowadays is a mobile app that rewards its users with points or other positive reinforcements if they commit certain green actions (based on the app programs). They can be something like contributing to reforestation efforts, donating to a cause, or reducing their single-use plastic uses.
Oracle is a system that opens many possibilities in blockchain, including for recent technology such as crypto. Understand how oracle crypto works to help you participate in the blockchain system and use it more effectively.