Blockchain platforms are quite a technological innovation. That being said, like any new technology, it takes time for the general public to adopt it for a regular use. In a nutshell, this describes what the blockchain oracle problem is, including the questions related to the essence of the technology and oracle blockchain network itself. Here is a small guide that will help to understand the core principles and blockchain oracle problem.
Contents:
Understanding the Potential of Blockchain Platforms
The Problem
Important functions or oracles
Attentive monitoring
Data extraction
Structuring data
Run complex tasks
Final Thoughts
Understanding the Potential of Blockchain Platforms
Before we can fully describe the problem, let’s look at what blockchain platforms are and the developments they may potentially bring to a wide spectrum of industries. Blockchain platforms such as Ethereum are decentralized as compared to regular centralized markets such as the websites we are used to.
Decentralized markets basically aim to offer shortcuts bet it in selling products or retrieving important data. This is accomplished by an efficient network that is composed of a blockchain API and a series of Chainlink node operators. One of the major byproducts of this technology is the NFT. What is NFT?
- Non-fungible tokens are used to represent data in the form of a coin of blockchain networks.
- They enable trade with the exclusion of intermediaries who extend the trading process on centralized markets. For example, artists can only make their work available to the masses through an art dealer.
- Thanks to real-time cryptocurrency APIs and reliable blockchains, creators can finally know how to convert objects to NFT.
- Additionally, all professions that involve sorting data and storing it can also benefit from NFTs as well.
This short description makes blockchains look like the obvious option for trading and storage of data. So, why would there be any resistance to accepting them in the first place?
The Problem
Blockchains do not yet have the ability to automatically access data from an external source. This is the entire premise of the oracle problem. This means that blockchains are an isolated network and as such, they are not able to process sufficient data compared to a centralized system that is connected via the internet.
Isolated networks can be a bit difficult to deal with. However, they carry an important advantage. These networks cannot be hacked, which makes them highly reliable for the storage of confidential information. In as much as that is very important, isolation prevents growth.
Let's look at an example:
Any contract that deals with finances requires constant access to information from global markets to stay up-to-date with what’s going on. As of this moment blockchain networks don’t have the ability to generate this information and this is quite an inconvenience.
Important Functions or Oracles
An oracle is a special tool that has been devised to close the gap between the outside world and blockchain networks. Eternal sources may include the following:
- Cloud providers
- Data providers
- Blockchain API
- Online payment systems
Additionally, all oracles must have certain functions. Let’s check the below list with the main functions.
Attentive monitoring
This is an ability that requires the surveying and detection of any data from external sources. The oracle should be able to monitor the blockchain and identify this information in as little time as possible.
Data extraction
The oracle not only provides a bridge to the external world. It should also have the ability to copy or retrieve data from multiple sources at the same time (these sources in web APIs, cloud services, etc.).
Structuring data
Once data is extracted from external sources, it must be restructured. This is done because the data is moving from one platform to another and the previous format might not be optimal for blockchain platforms.
Run complex tasks
An oracle should have the capability of analyzing complex data and creating solutions with a list of variables. A good example is figuring out how much a monthly insurance premium would cost given the details of a specific applicant.
Final Thoughts
Blockchains don’t have the results of the oracle problem yet. This is primarily due to their nature as decentralized platforms that process data safely. This makes them reliable. On the other hand, the isolation prevents them from reaching their full potential and discourages the platform's use on a bigger scale.
Although the oracles were created to solve the bridging issue, blockchain networks are run on a decentralized network where node operators are designed to perform a particular task. Adaptation to oracles and external data sources will mean changing the nature of blockchains entirely. As a result, solving one problem would just lead to the creation of many others.
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