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Oracle: The Bridge Between Blockchain and the Real World

We all know that blockchain itself is a closed system; it can only process on-chain data. However, smart contracts still require real-world data to function properly.

But blockchain has no way to access real-world data such as stock prices, token prices, or sports results because it can’t “browse the web” or call APIs for information. That’s where oracles come in!

Oracles work in 3 steps:

1️⃣ Data Collection: Gather data from multiple data sources

2️⃣ Data Verification: Ensure data reliability through node cross-validation, digital signatures, consensus mechanisms, or data verification algorithms

3️⃣ Data Transmission: Write the verified data onto the blockchain for smart contracts to use

Example 🌰:

• The oracle uploads real-world data to the blockchain for a prediction market like “If the Fed cuts rates in December, pay out 500U”

• The oracle uploads real-world data to the blockchain

• Once Polymarket’s smart contract receives the data, it automatically triggers the payout if necessary

Summary:

Oracles are the “bridge” between blockchain and the real world. They enable smart contracts to run automatically based on real data and are the core infrastructure for DeFi, insurance, gaming, and other applications.