Proponents of blockchain technology envision its advent as a solution to a wide variety of issues that modern industries face. However, blockchain technology is not able to work on such an ambitious scale without utilizing solutions – such as ‘oracles’ – to overcome inherent limitations.

While the information that we encounter in our everyday lives is sporadic and at-times chaotic, blockchains are only able to make sense of chronological information.

Luckily, with an abundance of bright minds and contemporary thinkers operating in the space, blockchain technology is able to escape this limitation. One way this is done is with oracles, technology that takes disparate data and organizes it in a way that blockchains are able to understand.

Chronology is a helpful security tool, but has its limitations

Blockchain technology functions through adding chunks of information, known as ‘blocks,’ to a digital ledger. For the​ ​sake​ ​of​ ​transparency and functionality,​ ​all​ ​information​ ​handled​ ​by​ a ​blockchain​ ​is​ ​stored​ ​in chronological​ ​order.

To illustrate how this works it may be helpful to picture a blockchain as a physical diary. When recording information in the ‘diary,’ the entries must occur one after another. In this diary, it is not possible to go back and retroactively add a record, as new entries must occur after the previous ones.

Blocks​ ​being​ ​stored​ in a​ ​sequential​ ​order​ ​is​ ​actually hugely beneficial for the technology in many cases. Through rejecting information that arrives out of order​, blockchains are able to eliminate double spending. This is especially important for decentralized digital currencies like Bitcoin and Ethereum, which do not make use of a central party to verify transactions.

Additionally, the deterministic nature of blockchains makes it extremely easy for the public to follow how digital currency spending occurs. Users are not forced to place blind faith in the technology, as they are able to easily trace every transaction that occurred since the beginning of the network.

However, while the chronological nature of blockchains is a practical function of the technology’s design, issues begin to arise when using the technology outside of its original intent.

In the world today, blockchains are not just a framework for digital currencies. Innovative applications for blockchain technology include smart contracts and decentralized applications (dApps). The technology is used everywhere from educational credentials to digital collectibles and has entire research institutions dedicated to discovering new use cases.

Blockchains use oracles to make sense of the broader world

In order to allow blockchain technology to serve in a broader array of uses than its original intent, a mediator has to be employed that can convert non-chronological information into a format that blockchains are able to understand.

These mediators are known as ‘oracles’ and are a way of feeding external information into a blockchain. This is extremely important since information in the real-world does not abide by deterministic principles – since information arises unpredictably in our everyday lives

Oracles take information directly from specified data sources and translate the data into a stream of information that a blockchain is able to understand. For​ ​this​ ​reason,​ ​oracles​ ​serve​ ​as​ ​the​ ​bridge​ ​between​ ​blockchains​ ​and​ ​the​ ​world​ ​at​ ​large.

Oracles in action: smart contracts

One of the most disruptive new inventions facilitated by blockchain technology is smart contracts. Smart contracts are programs set to execute once certain conditions have been met, and can serve to completely circumvent the need for intermediaries in many cases.

As a basic example, a smart contract can hold funds that are paid to an employee once certain conditions have been met (such as completing a task). However, smart contracts are not limited to financial dealings.

The disruptive invention continues to be employed at an increasingly grand scale, allowing for payment systems, contracts, and entire organizations to run without someone being in control.

For a smart contract to know that the programmed conditions have been met, it needs to access information from the real-world. Since this information is not compatible with the chronological nature of blockchain technology, this is a key area where oracles allow blockchains to access external information.

Without the existence of oracles or a comparable solution, smart contracts would be extremely limited in their applications. This is also the case for other blockchain-based systems that are used in conjunction with information from the real-world.

Ultimately, it is the role of oracles to serve as the gateway that allows blockchain technology to be introduced to many of the industries we encounter in our everyday lives. Utilizing this technology, innovators are able to replace existing systems with decentralized and democratic models of governance.

 

Image Credit: Wikimedia Commons

 

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