## The True Identity of Oracles: The Data Bridge Between Blockchain and the External World

**BlockChain Oracle** is translated as "oracle," but this name can be misleading. The core function of an oracle is not to predict the future but to **provide technical solutions for smart contracts to access off-chain data**.

In Greek mythology, oracles are the channels connecting gods and humans. In the blockchain ecosystem, oracles play a similar intermediary role—they are the information transmitters between the blockchain (a closed ledger system) and real-world data sources.

### Why does the blockchain need oracles?

Blockchain networks, by design, make a trade-off: **prioritizing security and decentralization at the expense of scalability**.

This means that the blockchain itself is "offline." It cannot proactively fetch off-chain data nor output information to external systems. In other words, without an intermediary layer, a blockchain system is like a computer trapped in a local area network—mainly capable of bookkeeping and almost nothing else.

However, in reality, most valuable smart contract applications require off-chain data to be implemented:

- **Financial scenarios**: Contracts need real-time market prices for settlement and delivery
- **Trade scenarios**: Contracts require digital signatures and contract content to complete financing and disbursement
- **Logistics scenarios**: Contracts need sensor data and IoT information to track goods

Oracles exist precisely to bridge this gap.

### Core services provided by oracles

**Data Import**

The primary responsibility of an oracle is to bring real-world data (stock prices, sports results, weather data, etc.) into the blockchain, enabling smart contracts to trigger and execute based on external events.

**Data Aggregation and Validation**

To ensure data accuracy, oracles typically collect information from multiple sources and perform cross-validation. This aggregation mechanism reduces the risk of errors from a single data source and determines the final data through consensus or weighted methods.

**Off-chain Computation**

Some computational scenarios are too complex to execute on-chain without incurring high costs. Oracles can perform these calculations off-chain and then submit the results on-chain, improving system efficiency.

A special case is **random number generation**. Decentralized gaming and betting applications require truly random numbers, but randomness on the blockchain is inherently predictable, so they must rely on oracles to provide cryptographically secure random sources.

**Economic Incentives**

Many oracles adopt token staking and reward/punishment mechanisms. Data providers need to stake tokens as collateral; accurate data yields rewards, while tampering or falsifying data results in penalties. This design ensures honest participation.

### Attack surfaces and security risks of oracles

Although oracles solve the connectivity problem, they also introduce new security risks:

**Price manipulation attacks** are the most common threat. If an oracle relies on a few centralized data sources, attackers can manipulate these sources to alter asset pricing information. For example, a major exchange was once targeted by a flash loan attack, where the attacker controlled the oracle price data and combined it with a flash loan to illegally profit about $34 million.

Other common threats include:

- **Man-in-the-middle interception**: intercepting and tampering with data during transmission
- **Front-running**: executing trades ahead of price movements to profit
- **Selective reporting**: nodes intentionally reporting only data favorable to themselves
- **Replay attacks**: repeatedly transmitting historical data to trigger improper executions

The root cause of these frequent past attacks was the **centralized oracle design**, which posed a single point of failure. Fortunately, the industry has recognized this issue, and more oracle projects are adopting **decentralized information verification schemes** to disperse the risk of individual node breaches.

### The evolution of the oracle track

The oracle field is experiencing a battle between "old" and "new" forces.

**LINK** (ChainLink, current price $12.75, down 6.27% in 24 hours), as the earliest established oracle project, still dominates the market due to its first-mover advantage and widespread deployment.

However, emerging competitors are rising:

- **PYTH** (Pyth Network, current price $0.06, down 6.00% in 24 hours) adopts a more aggressive price aggregation model
- **UMA** (current price $0.73, down 1.93% in 24 hours) focuses on synthetic assets and cross-chain data
- **API3** attempts to avoid middlemen risks through a first-party oracle model

The competition in the oracle track essentially tests different **decentralization and efficiency trade-offs**. Future winners will not only need to provide accurate data but also find the optimal balance among security, cost, and coverage.