Blockchain technology is among the most innovative of the last century and seems to be attracting more and more attention from the general public.
According to Forbes in the future more than $487 trillion will be brought into the world of blockchain, and oracles will be the specific element that will enable this exponential growth.
Blockchain technology and the role of oracles
Blockchain technology acts as a distributed digital ledger over which data of any kind can be written.
The concept of immutable data is not new and has prehistoric origins, yet only in recent years has it become central again in mainstream narratives of innovative technologies.
In each of these chains, mainly data inherent to the cryptocurrency world is transcribed, while data from the outside world is almost completely absent.
This is determined by the fact that blockchain technology itself is not capable of extrapolating data from the real world but rather does an excellent job of transporting and storing on-chain data.
For blockchain to play a central role in the development of society within social and administrative institutions as well as purely financial ones, there needs to be a gateway that bridges these different realities.
Blockchain oracles, such as those developed by Chainlink, essentially perform this task: they take external data such as, for instance, weather information and election data and bring it into the distributed networks.
Forbes believes that oracles will be the main element that will enable the expansion of this industry and the immersion of this technology into every area of daily life.
There is still a long way to go, and proper security systems and infrastructure capable of handling the huge amount of data in the off-chain world are required for blockchain to be used in any context other than finance.
In addition, the technological knowledge barrier is holding back the advancement of this expansion given that cryptocurrencies and DLT systems are still considered niche concepts.
It will be interesting to see how the situation regarding crypto oracles evolves in the coming years and whether more and more information inherent to the concrete world we know today will be present within blockchains.
Types of crypto oracles
There are numerous types of crypto oracles, which play different roles based on their technological background.
Generally speaking, we can simplify the concept by distinguishing oracles from one another based on the source of the data, the direction in which the information is moving, and how this data earns the trust of the end user.
- Data source: there are computer systems that collect data in a digital version while others refer to physical data. Oracles can represent hardware or software systems. Those of the software type refer to the most popular oracles in the crypto world such as those developed by the Band Protocol, Quant and Chainlink projects, while hardware oracles are not yet present on a large scale but represent the future of off-chain data transport.
An example of a hardware oracle might be radio frequency identification (RFID) chips that identify external data such as weather conditions or health information.
- Direction of information: the direction of data carried by oracles can be incoming or outgoing: trivially, a piece of information can enter the blockchain from external situations (real world) or it can on the contrary go from the on-chain world to the physical world.
Crypto-AI systems essentially serve to make this transition happen as truthfully and efficiently as possible.
- Trust mechanism: trust is a central concept within this narrative. An oracle can be decentralized or centralized, and in both cases there are conflicting directions in terms of trust.
Centralized systems possess “points of failure” i.e., points where they can be attacked and information can be manipulated while decentralized systems do not possess this flaw, but can still be compromised if the infrastructure they rely on has flaws in the code or the network nodes are not properly distributed.
Blockchain: the most innovative technologies of the moment
Innovations in blockchain arise and improve year by year.
In 2014, the crypto community had few distributed data computation systems available and these could perform a small list of actions.
After just 9 years we are looking at a considerable expansion of the blockchain ecosystem, although the Ethereum Mainnet still emerges as the dominant and most widely used web3 infrastructure in the world.
Innovative financial products such as tokenized shares, partially collateralized debt assumption, and decentralized credit issuance are just a few of the innovations that have emerged in recent years.
The technology of ZK rollups, which allows on-chain actions to take place without revealing counterparty data, is one of the dominant trends of the moment and the immediate future.
Another trend to consider for the future of blockchain is AI, IoT and EoT projects, which aim to automate the processes we discussed in the previous paragraphs.
The introduction of OpenAI’s flagship product, namely ChatGPT, was probably the most eye-opening to the potential of this technology, which really seems to be on the verge of becoming dominant in any sphere of modern society.
Even the giant Amazon is about to introduce its own prototype chatbot capable of addressing the needs of users and the development of the relationship between individuals and computer systems.
We do not yet know what direction the future will take and whether new technologies in the field will succeed in making this world mainstream worldwide.
What we can guess, however, is that evolution is taking its course, and whichever path it takes, it will be a success for all humankind