You have probably heard how blockchain-based smart contract applications will change the way the world exchanges value and facilitates agreements. But there is a problem. To securely retrieve data from the outside world, smart contracts require an additional piece of infrastructure known as an oracle. That’s because decentralized apps need data from the non-blockchain world in order to function and be useful to individuals and organizations throughout the globe. Examples of such data include price data for derivatives, weather data, sports results, IoT sensor readings, and any other real-world validated data need you can think of.
These dapps wouldn’t be very useful without access to reliable data. Therefore, oracles act as the connecting tissue for obtaining, handling, and transferring important data. However, not just any oracle system will do. They need to be entirely decentralized in order to guarantee the integrity of the data. The data that controls smart contracts needs to meet the highest possible standards because it will directly control billions, and eventually trillions, of dollars in value.
However, it is crucial to understand that while all oracles aim to serve as the link connecting essential external data from the current web to blockchain-based apps, they do not all operate in the same manner. Therefore, there’s a need to know exactly what to look out for when choosing a decentralized oracle.
The most important factor is to ensure that the oracle is truly decentralized. A collection of independent oracle nodes is needed for a decentralized oracle. However, just combining a collection of oracle nodes falls short of achieving the degree of decentralization needed to deliver high-quality data.
A truly decentralized oracle network must be one in which:
- The data sources are determined by a preliminary valuation mechanism chosen by the community.
- Validators are elected by the community.
- The rules around staking, including rewards and slashing penalties, are set by the community, not by a central authority.
This must be done in order to avoid vulnerabilities and fulfill the fundamental promise of blockchain’s peer-to-peer technology.
This means there are some oracles that are not truly decentralized because they do not participate in the internal mechanics of blockchains since they are not blockchains. As with any other third party, centralized oracles can be hacked and subject to manipulation.
For this reason, many blockchain projects, including QED Network, a truly decentralized oracle network that provides smart contracts with a tamper-proof and highly available connection to all of the world’s highest-quality data feeds, are providing the definitive truth about the real world for high-value smart contract applications for any blockchain network, securely connecting the world’s existing infrastructure to the emerging blockchain infrastructure that aims to redefine it.
With QED, a smart contract can access data pertaining to financial markets and cryptocurrency prices, enabling a more robust and useful blockchain-based application. QED has always used external collateral and never relied on a system token for collateral – it predicted the death spiral of systems like Luna.
Also, we have the likes of Chainlink (LINK) and Band Protocol (BAND)—all of which are developing (or have developed) decentralized oracles.
Other factors to look for in a decentralized Oracle include:
- Choosing oracle nodes and networks that make use of high-quality data sources and guarantee rapidity, accuracy, and uptime.
- Looking for any single point of failure when thinking about Oracle solutions, whether at the data source, Oracle node, or Oracle network level.
- Choosing oracle networks where every node has a track record. There are no outliers; one weakened pillar can jeopardize the building’s security as a whole.
- Prioritizing blockchain oracle products and node performance so you can keep an eye on the oracle’s security at all times.
Because of their boundless potential, decentralized oracles are crucial to enabling decentralized apps to democratically transform our current reality. The trick is to put them into practice without undermining the most crucial aspect of the change they offer.