Bitcoin oracles are approved data providers that can be predetermined by a user to provide indicators that activate a smart contract on the blockchain or second layer networks. If, for example, you want to sell your bitcoin at a specific price or transfer your bitcoin based on a particular event, an oracle can provide the data that triggers the transaction.
As you can imagine, this is a complex service with a host of potential dangers and remains experimental for the Bitcoin blockchain. Bitcoin oracles are the culmination of research done at the Massachusetts Institute of Technology (MIT), where researchers are working on ways to add new capabilities to Bitcoin’s functionality.
The benefit of oracles is it allows multiple external data feeds to present their results and for the smart contract to decide on a valid execution of the rules with no intermediary needed. The contract does what it’s programmed to do with the help of the oracle.
Types of oracles
The concept of blockchain oracles isn’t new and has already been used in other blockchain projects to provide data to settle more robust smart contract options. Several types of oracles can be used both as private oracles or public oracle implementations.
Software oracles monitor online information generated and stored in different databases willing to provide information or have free and open access to datasets.
Software oracles can track items such as the temperature, gold prices, flight delays, and even election results via data scraping or API data feeds. Oracles are able to sort through available online information and extract the necessary data automatically before sending the info to the smart contract.
When using a software oracle it is important to have several sources that can be compared to validate the accuracy of the data.
Hardware oracles track real-world items such as a ship reaching harbor or a car entering a particular area. These types of oracle require additional hardware sensors to complete these tasks. RFID technology could give these oracles a massive boost in capabilities in the coming months. These devices provide users with the ability to monitor complete supply chains via the blockchain.
Inbound oracles utilise external world inputs and is probably the one method that will be most popular when it comes to the use of oracles on the bitcoin blockchain and its side chains.
Companies are looking to these oracles to set up automatic buy orders upon the completion of specific tasks. For example, you could set a buy order for bitcoin if, say, gold prices rise or interest rates on a bond change.
Outbound oracles allow smart contracts to release data to real-world items. These oracles are now popular thanks to the rise in smart home technology. For example, an outbound oracle unlocks a smart lock upon the completion of another smart contract.
This way you could build products that can leverage against risk, if one smart contract is set to sell, the other could be set to buy an offsetting trade.
Prediction-based platforms utilize consensus-based oracles heavily. These oracles gather information from numerous locations. They are perfect for monitoring financial markets where using one source of data could be unreliable or could be corrupted.
Bitcoin oracle services
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