Oracles are an important component of the smart contract ecosystem.
The limitation with smart contracts is that they cannot access external data, which might be required to control the execution of the business logic; stock price of a security product that is required by the contract to release the dividend payments.
Connecting Smart Contracts to the Real World
Oracles can be used to provide external data to smart contracts.
An Oracle is an interface that delivers data from an external source to smart contracts.
Depending on the industry and requirements, Oracles can deliver different types of data ranging from weather reports, real-world news, and corporate actions to data coming from Internet of Things (IoT) devices.
Oracles are trusted entities that use a secure channel to transfer data to a smart contract.
Oracles are also capable of digitally signing the data proving that the source of the data is authentic.
Smart contracts can then subscribe to the Oracles, and the smart contracts can either pull the data or Oracles can push the data to the smart contracts.
Why This Matters for Blockchain Technology
It is also necessary that Oracles should not be able to manipulate the data they provide and must be able to provide authentic data.
Even though Oracles are trusted, it may still be possible in some cases that the data is incorrect due to manipulation.
Therefore, it is necessary that Oracles are unable to change the data.
In this approach, an issue can already be seen which perhaps is not desirable in some cases, and that is the issue of trust.
Key Points to Remember
- Oracles Oracles are an important component of the smart contract ecosystem.
- The limitation with smart contracts is that they cannot access external data, which might be required to control the execution of the business logic; stock price of a security product that is required by the contract to release the dividend payments.
- Oracles can be used to provide external data to smart contracts.
- An Oracle is an interface that delivers data from an external source to smart contracts.
Going Deeper: Advanced Concepts
How do you trust a third party about the quality and authenticity of data they provide?
This is especially true in the financial world, where market data must be accurate and reliable.
It might be acceptable for a smart contract designer to accept data for an Oracle that is provided by a large, reputable, trusted third party, but the issue of centralization remains.
These types of Oracles can be called standard or simple Oracles.
Conclusion
Oracles represents one of the many innovative layers that make blockchain technology so powerful and transformative. As distributed systems continue to evolve, a solid understanding of these core concepts becomes increasingly valuable — not just for developers, but for anyone building, investing in, or working alongside blockchain-powered systems.
Whether you are just starting your blockchain journey or deepening existing expertise, mastering these fundamentals gives you the tools to think clearly about decentralized systems and make smarter decisions in this rapidly evolving space.