An oracle is a bridge that connects blockchain networks with external data sources or systems. While smart contracts are powerful tools for automating processes on the blockchain, they are typically unable to access data from outside their network. This limitation is where blockchain oracles come into play.
Blockchain oracles serve as trusted sources of off-chain data, providing information to smart contracts so they can autonomously execute predefined actions based on real-world events or conditions. Oracles essentially act as intermediaries, fetching external data and feeding it into the blockchain where smart contracts can access it.
There are several types of blockchain oracles. These include software oracles, which obtain data from online sources, such as APIs, websites, or databases. Hardware oracles retrieve data from the physical world using sensors, IoT devices, or other hardware components, while consensus oracles aggregate data from multiple sources and provide a single, agreed-upon value to the blockchain.
Blockchain oracles expand the capabilities of blockchain networks beyond simple cryptocurrency transactions, enabling a wide range of use cases, including decentralised finance (DeFi), gaming, and more.
