2.4 Oracle

The name of the oracle is easy to be misunderstood: In fact, the oracle machine is not used to predict anything, but a mechanism to transfer data from outside of the blockchain to the inside of the blockchain. It may be easier to understand the concept this way: it is a tool that transfers data from outside the system into the system.

When people talk about the blockchain, they always say that all transaction records are traceable, safe, and transparent on the chain, but one must know that the blockchain is a deterministic and closed system, so the smart contracts running on the blockchain cannot directly acquire data from the outside. In other words, it can only perform tasks in a closed, isolated environment. An oracle is a tool that can truly input data from outside the chain into the chain to ensure the authenticity of the data on the chain.

The traceability and anti-tampering features of the blockchain make the data credible, but if there is a problem with the original data, then the blockchain will not work well. As a transmission mechanism between off-chain data and on-chain data, the oracle machine accurately writes real-world data to the blockchain. It has many application scenarios including all the dAPPs that need to interact with off-chain data need oracles, such as financial derivatives trading platforms, lending platforms, courier tracking/IoT, stable coins, gamings, insurance, prediction markets, etc. .

At present, the main usage scenario of the oracle is DeFi. The oracle accurately provides core data sources such as transaction price information volatility to the DeFi protocol to ensure the smooth operation of the DeFi protocol.