🌉 Ju.com Education: Understanding Oracles — The Bridge Between Blockchain and the Real World!

[{"type":"paragraph","children":[{"text":""}]},{"type":"heading-two","children":[{"text":"Introduction: Why Do We Need Oracles?"}]},{"type":"paragraph","children":[{"text":"In the blockchain world, there is a seemingly paradoxical dilemma: on-chain applications need to rely on real-world data, but the blockchain itself is a closed system. Smart contracts are powerful, but they can’t directly “go online” and cannot autonomously obtain external information such as weather, prices, interest rates, or voting results."}]},{"type":"paragraph","children":[{"text":""}]},{"type":"paragraph","children":[{"text":"Imagine that if you want to borrow USDT by collateralizing ETH on a DeFi platform, you need to know the real-time price of ETH; if you want to play an on-chain sports prediction game, you need to know the final score of the match. Without external data inputs, smart contracts are “deaf” and can’t make correct decisions."}]},{"type":"paragraph","children":[{"text":""}]},{"type":"paragraph","children":[{"text":"Thus, the Oracle was born. It is the bridge between on-chain and off-chain, allowing smart contracts to use real-world data in a secure and trustworthy way."}]},{"type":"paragraph","children":[{"text":"\n"}]},{"type":"heading-two","children":[{"text":"What Is an Oracle?"}]},{"type":"paragraph","children":[{"text":"An oracle is not a “fortune teller,” but a data transmission mechanism. Simply put, the oracle’s job is to:"}]},{"type":"bulleted-list","children":[{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Obtain data from the outside world (off-chain);"}]}]},{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Verify the authenticity of the data in a decentralized way;"}]}]},{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Then transmit the data onto the blockchain for smart contracts to use."}]}]}]},{"type":"paragraph","children":[{"text":"In plain terms:"}]},{"type":"paragraph","children":[{"text":"The blockchain is like a “closed financial computer,” smart contracts are the “programs,” and the oracle is the “API interface,” responsible for converting facts from the outside world into inputs that smart contracts can understand."}]},{"type":"heading-two","children":[{"text":""}]},{"type":"heading-two","children":[{"text":"Comparing SocialFi’s Operating Logic with Oracles"}]},{"type":"paragraph","children":[{"text":"In the previous article we discussed that SocialFi’s logic is “social + finance,” relying on user data and interactions, while the oracle’s logic is “real world + on-chain,” relying on data sources and verification mechanisms. Both emphasize one core idea: the valorization and credibility of data."}]},{"type":"paragraph","children":[{"text":"The oracle’s operating logic is divided into three steps:"}]},{"type":"bulleted-list","children":[{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Data collection: For example, obtaining raw data from exchanges, IoT devices, or weather APIs."}]}]},{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Data verification: Different nodes submit the same data, and the system selects a trustworthy result through mechanisms such as weighting, voting, and reputation."}]}]},{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Data on-chain: Verified data is written to the blockchain via the oracle for smart contracts to call."}]}]}]},{"type":"paragraph","children":[{"text":"For example:"}]},{"type":"bulleted-list","children":[{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"DeFi lending protocols need to know the real-time price of ETH/USD;"}]}]},{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"NFT games need an external random number (fair draw);"}]}]},{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Insurance contracts need to know whether a flight was delayed."}]}]}]},{"type":"paragraph","children":[{"text":"All of this depends on oracles."}]},{"type":"heading-two","children":[{"text":""}]},{"type":"heading-two","children":[{"text":"Classifications of Oracles"}]},{"type":"paragraph","children":[{"text":"Oracles are not a single model, but a vast system. Different blockchain projects and different application scenarios have very different needs for oracles, so the industry has gradually formed multi-dimensional classification methods. Common criteria include data direction, data source, and degree of centralization, but in fact each category contains more fine-grained logic."}]},{"type":"heading-three","children":[{"text":""}]},{"type":"heading-three","children":[{"text":"1. By Data Direction"}]},{"type":"numbered-list","children":[{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Inbound Oracle\nThe core role of an input-type oracle is to transmit off-chain data to on-chain. This is the most common type, especially in DeFi.\nFor example, a lending platform must know the latest market prices to determine whether collateral has triggered liquidation conditions. Without input-type oracles, smart contracts simply cannot automatically execute liquidation logic."}]}]}]},{"type":"paragraph","children":[{"text":"Chainlink is a typical input-type oracle. It brings real-time prices of assets like BTC and ETH on-chain through numerous data providers and nodes."}]},{"type":"numbered-list","children":[{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Outbound Oracle\nIn contrast, the mission of an output-type oracle is to send on-chain data to off-chain. Imagine a scenario: an insurance contract confirms your flight delay on-chain, the smart contract triggers a payout, and at the same time, through an oracle, sends an instruction to a bank payments system or payment gateway to transfer funds to your bank card. This is a typical output-type oracle application."}]}]}]},{"type":"paragraph","children":[{"text":"Although output-type applications are less common than input-type ones, they are extremely valuable in cross-border payments, supply chain finance, and IoT applications."}]},{"type":"heading-three","children":[{"text":""}]},{"type":"heading-three","children":[{"text":"2. By Data Source"}]},{"type":"numbered-list","children":[{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Software Oracle\nSoftware oracles primarily collect data from websites, APIs, and exchanges. Their advantages are low integration thresholds, rich data, and fast speed.\nFor instance, an oracle may pull flight status from a flight API, weather data from a weather API, or real-time prices from Coingecko or Binance interfaces. The problem is that APIs themselves may be attacked or tampered with. If the source data is untrustworthy, putting it on-chain is useless. Therefore, software oracles usually combine multi-source verification."}]}]},{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Hardware Oracle\nHardware oracles interface directly with physical devices in the real world, such as sensors, RFID chips, cameras, and IoT devices. For example, in agricultural insurance, sensors can monitor farmland humidity and climate in real time; such data is uploaded on-chain via hardware oracles to automatically trigger payouts."}]}]}]},{"type":"paragraph","children":[{"text":"In supply chain finance, RFID chips can track cargo transportation to ensure the trustworthy execution of “payment upon delivery.” This model is crucial in RWA (Real-World Assets on-chain)."}]},{"type":"heading-three","children":[{"text":""}]},{"type":"heading-three","children":[{"text":"3. By Degree of Centralization"}]},{"type":"numbered-list","children":[{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Centralized Oracle\nProvided by a single institution or company, such as an exchange that builds its own oracle."}]}]}]},{"type":"bulleted-list","children":[{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Advantages: High efficiency and low latency, suitable for low-value or internal closed-loop scenarios."}]}]},{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Disadvantages: Single point of failure and tampering risk. If one centralized node is attacked, the security of the entire system collapses."}]}]}]},{"type":"numbered-list","children":[{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Decentralized Oracle\nA decentralized oracle uses multiple nodes to provide data and achieves consensus through mechanisms like voting, staking, and economic incentives. Price data comes from dozens of independent nodes and is ultimately aggregated into a trustworthy value. If a node submits obviously abnormal price data, its staked tokens will be slashed.\nThis mechanism avoids the single-point-of-failure problem. Although slightly less efficient, it better aligns with the blockchain’s “trustless” ethos."}]}]}]},{"type":"heading-two","children":[{"text":""}]},{"type":"heading-two","children":[{"text":"Oracle Application Scenarios"}]},{"type":"paragraph","children":[{"text":"Oracles are hailed as the “eyes and ears of the blockchain.” Without them, smart contracts are an “information island.” Below, we expand from four directions: finance, insurance, entertainment, and real-world assets on-chain."}]},{"type":"heading-three","children":[{"text":""}]},{"type":"heading-three","children":[{"text":"1. DeFi Finance"}]},{"type":"numbered-list","children":[{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Lending platforms\nAave, Compound, and other lending platforms must rely on price oracles to determine liquidation thresholds. If ETH’s price falls below the collateral ratio, the real-time data provided by the oracle will trigger the smart contract to execute liquidation. Without oracles, liquidation would become manual, and the “automation” of DeFi finance would be impossible."}]}]},{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Derivatives contracts\nPerpetual futures, options, and futures products almost all depend on market oracles. For example, dYdX and GMX obtain prices via oracles to ensure derivatives prices track spot markets; otherwise, severe arbitrage and manipulation risks would arise."}]}]},{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Stablecoin systems\nMakerDAO’s DAI relies on oracles to monitor collateral values. Without accurate price inputs, DAI could lose its peg, and the entire stablecoin framework could collapse."}]}]}]},{"type":"heading-three","children":[{"text":""}]},{"type":"heading-three","children":[{"text":"2. Insurance Contracts"}]},{"type":"numbered-list","children":[{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Flight delay insurance\nIf a flight is delayed by more than 3 hours, an oracle pulls data from flight databases and triggers the smart contract to automatically send compensation to the user’s wallet. No claim materials are required—everything is completed automatically by the blockchain and the oracle."}]}]},{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Weather insurance\nIn agricultural insurance, if rainfall in a certain area falls below a threshold, farmers automatically receive compensation.\nThese weather data are provided by meteorological station APIs or IoT devices, ensuring objective claims."}]}]},{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Health insurance\nIn the future, smart wearables or hospital systems may serve as hardware oracles, uploading health metrics to the blockchain to automate health-insurance payouts."}]}]}]},{"type":"heading-three","children":[{"text":""}]},{"type":"heading-three","children":[{"text":"3. NFT and GameFi"}]},{"type":"numbered-list","children":[{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Randomness oracles\nGameFi and NFT “gacha” mechanics must ensure fairness. If randomness can be predicted, players will exploit it. Chainlink’s VRF (Verifiable Random Function) is an oracle designed specifically for this."}]}]},{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Game competitions and events\nIn blockchain games or esports, the final score and win/loss information usually occur off-chain. By uploading results on-chain via oracles, prize pools can be automatically distributed, avoiding human interference."}]}]},{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Dynamic NFTs\nIn the future, NFTs will no longer be static JPGs but can change based on real events. For example, an NFT player card can update stats as the player scores goals, with data input by an oracle."}]}]}]},{"type":"heading-three","children":[{"text":""}]},{"type":"heading-three","children":[{"text":"4. RWA (Real-World Assets)"}]},{"type":"numbered-list","children":[{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Real estate prices\nReal estate securitization requires accurate valuation. Oracles can pull the latest market prices from authoritative data sources. This gives real references to real estate-backed loans and RWA bonds."}]}]},{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Supply chain finance\nIoT devices upload cargo transportation status to the blockchain via hardware oracles. Funds are released only when the cargo actually arrives at the warehouse, preventing supply chain fraud."}]}]},{"type":"list-item","children":[{"type":"paragraph","children":[{"text":"Commodities trading\nWhen tokenizing physical assets like oil and gold, oracles input inventory, logistics, and price data so that on-chain financialization of physical assets becomes feasible."}]}]}]},{"type":"paragraph","children":[{"text":""}]},{"type":"heading-two","children":[{"text":"Summary"}]},{"type":"bulleted-list","children":[{"type":"list-item","children":[{"text":"Oracles are indispensable infrastructure in the blockchain world; they solve the blockchain’s natural limitation of “only seeing on-chain.” Without oracles, smart contracts cannot interact with the real world; with oracles, the blockchain can truly move toward real-world applications."}]},{"type":"list-item","children":[{"text":"In fields such as DeFi, insurance, logistics, and gaming, oracles are playing the role of a “data bridge.” In the future, as decentralization, AI, and privacy-preserving technologies advance, the security and reliability of oracles will continue to improve, making them an even more important component of the blockchain ecosystem."}]}]},{"type":"paragraph","children":[{"text":"\n"},{"type":"topic","character":"cryptocurrency","children":[{"text":""}]},{"text":" "},{"type":"topic","character":"blockchain","children":[{"text":""}]},{"text":" "},{"type":"topic","character":"Jucom","children":[{"text":""}]},{"text":" "},{"type":"topic","character":"DAO","children":[{"text":""}]},{"text":" "},{"type":"topic","character":"Oracles","children":[{"text":""}]},{"text":" "}]}]