Understanding The Role Of Oracles In Blockchain Technology

Introduction

Blockchain technology is vastly used in various domains, however, it is not self-sufficient to access external data or other blockchains. To overcome this limitation, blockchain utilizes a component known as 'oracle'. In this post, we focus on the significance of oracles in blockchain and present a simple oracles implementation on the Solidity programming environment.

What are Oracles

Oracles are third-party services that supply smart contracts with external data. They serve as bridges between blockchains and the outside world. Blockchains and smart contracts cannot access off-chain data (data outside the blockchain) due to their secure and deterministic nature. However, real-world applications of blockchain often require such off-chain data.

For instance, consider a sports betting smart contract that pays out based on the result of a football match. The smart contract is on the blockchain, but the football match result data is off-chain. An oracle brings that off-chain data onto the blockchain so the smart contract can execute.

Code Snippet: Oracle Contract in Solidity

Here is a skeleton implementation of an oracle contract using Solidity, a statically typed programming language designed for developing smart contracts.

Let's delve into creating a simple Oracle contract.

pragma solidity >=0.6.0 <0.8.0;

contract Oracle{
    address private admin;
    mapping(uint256 => bool) private processedRequests;

    event Request(uint256 indexed _id, string _url);
    event Response(uint256 indexed _id, string _result);

    constructor() public {
        admin = msg.sender;
    }

    function query(string memory _url) public {
        uint256 id = block.timestamp;
        emit Request(id, _url);
    }

    function resolve(uint256 _id, string memory _result) public {
        require(msg.sender == admin, "Caller is not the admin"); 
        require(processedRequests[_id] == false, "Request has been processed already"); 
        emit Response(_id, _result);
        processedRequests[_id] = true;
    }
}

This Solidity code creates an Oracle contract with a basic functionality of generating a Request event, containing a unique request id and a URL to get data from. Then, there's a function to resolve that request with response data. It emits a Response event containing the id and the fetched result. To ensure security, the resolve function can only be triggered by the contract's administrator and each request can only be processed once.

Conclusion

This is a basic introduction and implementation of oracles in blockchain. It's worth noting that oracles are not limited to fetching data but can trigger off-chain events. Oracles broaden the scope of what's achievable with smart contracts and blockchain, making the technology more applicable to real-world use cases.

Be aware, oracles introduce a counter-party risk in decentralized applications as they are usually centralized. Therefore, choosing reliable oracles is crucial for the smooth running of a blockchain application. Future posts will delve more into different types of oracles, their functions, and methods to minimize the risk associated with them.