Oracle

What Is Oracle?

Depending on the context, an oracle can be defined in a variety of ways. In the context of blockchain, an oracle is essentially a data source that serves as a link between smart contracts as well as other external sources. 

An oracle, in much more concrete terms, is an agent that not only interfaces with external data sources but also checks and verifies that the data being delivered is accurate. Oracles are thus in charge of delivering crucial and trustworthy information to smart contracts, which in return execute certain duties. 

The significance of oracles stems from the reality that blockchain smart contracts can only access data housed within their own digital network. As a result, oracles are required as a communication tool that "translates" real-world events (non-deterministic data) into digital values that smart contracts can recognize (deterministic data).

Common Types of Oracles

**Hardware Oracles: **Combines with physical systems and technology to provide real-world data for smart contracts. Hardware oracles, for example, can interface with RFID sensors used in a variety of sectors (automobile, pharmaceutical, supply chain, etc.)

**Software Oracles: **Most commonly used software oracles retrieve online data from other programs and web APIs, such as market prices, airline status, and weather data.

Consensus Oracles: a type of decentralized oracle that collects vast volumes of data from a certain amount of other oracles, using specified procedures to verify the authenticity and correctness of the data collected. 

Inbound Oracles: sends data from outside sources to smart contracts or even software oracles. Can be specified as a set of "if" rules (for example, "if an asset reaches a specific price, issue a buy order").

Outbound Oracles: sends data from smart contracts to external systems, allowing smart contracts to interact with non-blockchain sources.

Generally, a blockchain oracle is a third-party data source that requires external permission to function effectively, implying that they are typically a tool given by centralized entities. As a result, most oracles sacrifice the decentralized qualities of smart contracts.