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Why do we need an oracle
Smart contracts provide a new way to create new decentralized applications (DApps). However, smart contracts generally do not have access to information in the real world, such as data on the web, or any data that needs to be obtained through an API.
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How Oracles Work
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Problems with oracles
The decision of any smart contract execution depends heavily on the quality of the data provided by the oracle, which makes the security of the data source critical to the security of the chain, which is the main problem that the oracle has not yet solved. However, making good use of different types of blockchain oracles can significantly reduce this risk.
Oracles can be centralized or decentralized. The essential characteristic of the former type is to import data from a centralized database. A typical example is querying real-time data from a website running on an AWS server. This approach often negates the technical advantages of blockchain, as a single entity will control the data provided to the smart contract. However, in some use cases, especially around information from real-world data, the use of centralized oracles is unavoidable.
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Types of oracles
In a nutshell, an oracle is only as good as its data source. Therefore, we can differentiate oracle types based on the source of the data, the direction of the information, and the level of trust it represents.
software oracle
hardware oracle
Inbound Oracle
outbound oracle
Smart contract-specific oracles
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hardware oracle
Hardware oracles are devices such as electronic sensors, monitors, and barcode scanners that convert real-world events from the Internet of Things (IoT) into data on the blockchain. For example, sensors can track the weather and transmit the data to the blockchain.
Inbound Oracle & Outbound Oracle
Inbound oracles enable smart contracts to receive data from the outside world. Instead, outbound oracles enable smart contracts to send data to the outside world. For example, when a blockchain address receives a certain amount of tokens, an event in the outside world can be activated.
Smart contract-specific oracles
Summarize
Summarize
Oracles have become an important part of internal and external communication in the open network. Today, large networks of different oracles support the functionality of many important cryptographic projects. Without oracles, DeFi projects would have to rely solely on information available in their network, which would greatly limit their capabilities in a multi-blockchain future, including cross-chain transactions.
For example, Injective relies on a decentralized set of oracles to provide the most accurate prices for trading markets. Therefore, we partner with oracles like Band Protocol and Chainlink to provide a reliable source of truth. It is important to note that even in a decentralized environment, oracles are not completely infallible. Therefore, blockchain projects all have a responsibility to diversify the network of oracles they rely on to minimize the probability of error. This is one of the many reasons why Injective works closely with multiple oracle providers.
