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Oracles

Summary

An oracle provides real-world off-chain data and submits this information to a blockchain to be used by smart contracts. Typically this is a data feed provided by a third party service.

The Oracle Problem

Since smart contracts on Ethereum are fully self-contained and any information or access to off-chain data is restricted, certain types of smart contracts are reliant on an outside provider (an oracle) of off-chain data points. The problem ('the oracle problem') is that you now have a decentralized smart contract with a centralized key point of failure. The issue with this is obvious to anyone who values decentralization.

Solutions

Solutions to the oracle problem center around ways to both validate the data being queried and also place this data on chain in both an available and non-centralized manner. Solutions to these problems include consensus based truth, schelling point oracles (e.g. prediction markets), staked reporters (skin-in-the-game), trusted execution environoments (TEEs), and many combinations of the various game theoretic crypto-economic security measures.

Resources

Decentralized Oracles