Oracles is the most important bridge to bring Blockchain to real life

27 November 2020

I. Market Context

At the time when both Blockchain industry and DeFi are catching lots of attention from the whole world, there is an urgent need: How to prove the usefulness of Blockchain technology to the world.

There are many people who think that apart from Bitcoin, Blockchain has no value at all. Even with Bitcoin, its application is still very limited. Currently, from the writer’s point of view, the most prominent application of Crypto is Smart Contract. It is the Smart Contract that makes the process of automating and decentralizing industries easier.

But Smart Contract also has a huge problem, which is it needs data to work. The data that Smart Contract needs often comes from outside the Blockchain. And to get it, Smart Contracts need Oracles.

II. Definitions

Oracles is a kind of software (or sometimes hardware). It’s responsible for receiving and validating data from the outside into Blockchain and Smart Contracts by using methods such as APIs or market data.

We know that Smart Contracts are computer software systems that are capable of processing automatically each time a certain condition is met. For example, when you put 10,000 VND in a vending machine, it will automatically give you 1 can of water. With Smart Contracts, when you perform an action A with an existing contract, Smart Contracts will automatically execute clause B written in the contract.

Or, it can be understood by imaging that there is a smart contract for whether Trump or Biden will be elected president of the United States. People deposit money into this smart contract to bet on who will win the election. When the election results are announced, the contract will take the money of the loser to give to the winner. However, Blockchain must take the results of the election from the outside world. And that responsibility will be on Oracles.

By bringing information from the real world into the virtual world, Oracles allow programmers to create a variety of smart contracts, making Blockchain applicable to the real world. If a smart contract needs to know whether it rains on Tuesday, or what the current gold price is, Oracles will be responsible for showing that information to the Blockchain.

And now, DeFi is one of the waves that need Oracles the most. To work properly, DeFi needs a lot of data. Applications like derivatives/margins DEXes, insurance, trading, require external data to work. From volume to price, Blockchain itself cannot “get” that data. If an asset/pair traded on a DEX needs to display the price, Oracles will provide price data taken from the CEX exchanges. And sometimes, the value of Blockchain and Smart Contract depends a lot on the accuracy and timeliness of the data it receives.I. Market Context.

For example, when the data is wrong, the smart contract will simply have no value. If the smart contract about the presidential election that I mentioned above fails to update or update the wrong person elected as the US president, many people will lose money unjustly and the consequences will be very serious. That's why Oracles is becoming increasingly important to projects day by day. And because of that, more and more new Oracles projects are born. The table below lists some potential Oracles projects in the current period.

III. Projects

Chainlink (LINK)

LINK is a pioneer in Blockchain Oracles projects. Chainlink is currently the leader, as well as the strongest, simply for two reasons:

In the past 2 years, Chainlink has had a relatively strong development, both in technology and price, so that LINK is currently one of the top 10 coins in Coinmarketcap. Currently, LINK's important partnerships include many reliable names in the market such as Kyber Network, Synthetix, SWIFT, Binance, etc.