Blockchain Oracle Machine: Everything You Want to Know

What is a Blockchain Oracle Machine?

The Blockchain Oracle Machine is a data feeding service that connects smart contracts on the blockchain with the external world. Blockchain Oracles enable the decentralized Web3 ecosystem to access existing data sources. Before the development of Blockchain Oracles, there were some limitations in communication between the blockchain and external data sources. Blockchain Oracles are primarily developed for smart contracts to communicate and exchange resources with the external world. Data from the internet and other external data sources is integrated into information and input into the blockchain through Blockchain Oracles, and vice versa. The development of Blockchain Oracles aims to facilitate the integration of real-world data and blockchain activities.

Blockchain Oracle

Smart Contracts and Oracle Machine

Smart contracts are self-executing code that runs on the Blockchain in an automated and decentralized manner. Blockchain Oracles solve the communication problem between external data and smart contracts on the Blockchain.

An Oracle Machine is a data feed that brings off-chain data source data into the Blockchain for use by smart contracts. Data (resources) outside the Blockchain is referred to as “off-chain data,” while existing data on the Blockchain is referred to as “on-chain data.” The development of Oracle Machines is aimed at overcoming communication barriers and enhancing effective communication from on-chain to off-chain and vice versa.

The blockchain oracle machine bridges the information gap between the blockchain and the external world, forming a “hybrid smart contract”.

Types of Blockchain Oracle Machines

Due to the variety of off-chain resources, blockchain oracles come in various forms and sizes. Although blockchain oracles are unique, they can have variations. They are typically classified into different types based on their functionality.

1. Software Oracle Machine

Software Oracle Machines are blockchain oracles that connect and share on-chain data to the internet. These software oracles use databases, web crawlers, application programming interfaces (APIs), and other methods to share data and communicate between on-chain (Blockchain) and off-chain (internet) in a very fast, secure, and efficient manner.

2. Hardware Oracle Machine

Hardware Oracles are blockchain oracles that assist in the transfer of resources from off-chain to on-chain. Unlike software oracles, hardware oracles handle hardware components such as storage devices, hardware electrical sensors, and Internet of Things (IoT), while software oracles deal with digital sources like websites, servers, and APIs.

3. Inbound and Outbound Oracle Machines

As a data feed service, the Oracle Machine has a bidirectional communication link between off-chain data sources (the external world) and the Blockchain, used for sending and receiving data. Inbound Oracle Machines receive data from off-chain (the external world) to the Blockchain, such as databases, APIs, hardware sensors, IoT, and other off-chain data. Outbound Oracle Machines send data from on-chain (the Blockchain) to off-chain (the external world), such as real-time statistics of cryptocurrencies, including total supply, circulating supply, market capitalization, and so on.

Centralized cryptocurrency exchanges utilize blockchain oracle machines for certain trading functions. For inbound oracles, trading (buy or sell) orders can be placed when an asset reaches a specific price. Then, outbound oracles are used to inform the outside world of events occurring on the chain.

4. Cross-chain Oracle Machine

Cross-chain Oracle Machines are blockchain oracles that can read and write data across multiple blockchains. Cross-chain oracles solve the problem of blockchain interoperability, enabling the transfer of data and cryptocurrency assets between blockchains. They are used when data on one blockchain triggers actions on another blockchain, or when assets are bridged across chains for use outside of their native blockchains.

5. Centralized and Decentralized Oracle Machines

Centralized Oracle Machines are blockchain oracles managed by a single person or organization, used to manage resources sent and received off-chain and on-chain. If an oracle only receives data from one source, it is also considered centralized. Blockchain oracles must be partially centralized to achieve optimal operation.

A decentralized Oracle Machine is a blockchain oracle that is not controlled by a single entity or third party, used to manage resources sent and received on-chain and off-chain. Decentralized blockchain oracles have their limitations, requiring consensus from multiple network participants before creating smart contracts. It is primarily managed by third-party blockchains.

What applications use blockchain oracle machines?

1. Centralized Cryptocurrency Exchange

Centralized cryptocurrency exchanges use Blockchain Oracle Machines to share off-chain and on-chain resources. The price of cryptocurrencies on the chain can trigger off-chain APIs to execute certain trading operations through the inbound oracle machine, allowing buy, sell, or limit orders to be placed when the asset reaches a specific price. The outbound oracle machine can report on-chain events to the outside world. Stablecoins use Blockchain Oracle Machines to maintain the peg of stable cryptocurrencies to a certain currency.

2. Decentralized Application

Most DeFi (Decentralized Finance) decentralized applications require Blockchain Oracle Machines to access financial data about cryptocurrencies and markets. Decentralized lending applications like Goldfinch Protocol use price Oracle Machines to evaluate users' borrowing capabilities.

3. Cryptocurrency data websites and price indicator applications

Cryptocurrency data websites use outbound Blockchain Oracle Machines to receive real-time data on cryptocurrency prices, market capitalization, total supply, circulating supply, the number of addresses holding cryptocurrency assets, contract addresses, and more.

Examples of websites using outbound Blockchain Oracle Machines include Coinmarketcap, Coingecko, CryptoCompare, etc. Price indicator applications (watchlist apps) also use outbound Blockchain Oracle Machines via API to obtain updates and enable user-set real-time trigger alerts when cryptocurrencies reach specific prices. This is very useful in cryptocurrency analysis and trading.

Famous Blockchain Oracle Machine Project

1. ChainLink

Chainlink is a decentralized Blockchain Oracle Machine that provides tamper-proof inputs, outputs, and computations to support advanced smart contracts on any Blockchain.

Chainlink Oracle Machine provides a reliable and tamper-proof network through decentralized, trusted nodes, high-quality data, and cryptographic proofs, connecting highly accurate and available data/APIs to any smart contract. Chainlink allows users to build on a flexible framework that can retrieve data from any API, connect to existing systems, and integrate with any current or future Blockchain. On Chainlink, users can also automate contracts using the decentralized Chainlink automation node network, reducing the risk of human intervention and centralized servers.

2. SupraOracles

The adoption of Blockchain technology is very widespread, with many businesses choosing decentralized operations to enhance transparency and trust. As more companies and projects adopt decentralization, the demand for obtaining off-chain data through Oracle Machines becomes crucial for providing useful features and widespread adoption.

From DeFi to the metaverse, nearly every digital project requires access to external data sources. The creation of SupraOracles aims to improve Oracle Machines, preparing for a more decentralized future. The core mission of SupraOracle is to build the highest-performance blockchain infrastructure to power the value exchange of the world. Some features of SupraOracle include decentralization, scalability, ultra-fast speed, security, rapid finality, and interoperability.

3. Band Protocol

Blockchain performs excellently in immutable storage and deterministic verifiable computation. However, they cannot access trustworthy real-time information available outside the network. Band Protocol improves smart contract functionality by providing access to reliable data without the need for a central authority or points of failure. In short, Band Protocol is a cross-chain data Oracle Machine platform designed to aggregate and connect real-world data and APIs to smart contracts. BandChain is designed to work in conjunction with all smart contract platforms and blockchain development frameworks.

Summary

Blockchain oracles are used to connect on-chain (blockchain) data with off-chain (external world) data, achieving efficient communication through smart contracts. Oracles play a significant role in decentralized applications that rely on both on-chain and off-chain data. Software oracles are used to connect on-chain (blockchain) data with off-chain (internet data) to share blockchain data and internet data, while hardware oracles are used to share and exchange on-chain (blockchain) data with off-chain hardware data, such as storage devices, hardware electronic sensors, Internet of Things (IoT), and other hardware devices. Cross-chain oracles are blockchain oracles capable of reading and writing data across multiple blockchains. Cross-chain oracles facilitate communication and data sharing among blockchains, thereby eliminating interoperability limitations. Blockchain oracles are widely used in scenarios such as centralized exchanges, decentralized finance applications, cryptocurrency monitoring applications, and more. **$RED **$EDEN