Oracle

An oracle is a service that provides external data to smart contracts on a blockchain. Since blockchains are closed systems with no native access to information outside their network, oracles allow smart contracts to retrieve real-world data such as asset prices, sports results, exchange rates, or weather conditions. This enables smart contracts to react to off-chain events and execute more complex operations.

There are different types of oracles, including API-based oracles, decentralized oracles (such as Chainlink), which aggregate data from multiple sources for reliability, and two-way oracles, which can both retrieve external data and send blockchain data to outside systems. While oracles enhance blockchain functionality, they also introduce a potential vulnerability known as the “oracle problem,” where inaccurate or manipulated data could compromise smart contract execution, making verification and decentralization crucial.