{"id":226826,"date":"2022-03-24T02:00:43","date_gmt":"2022-03-24T02:00:43","guid":{"rendered":"https:\/\/cryptoslate.com\/?p=226826"},"modified":"2022-03-24T10:14:03","modified_gmt":"2022-03-24T10:14:03","slug":"demystifying-blockchain-oracles-part-1","status":"publish","type":"post","link":"https:\/\/cryptoslate.com\/demystifying-blockchain-oracles-part-1\/","title":{"rendered":"Demystifying blockchain oracles: Part 1"},"content":{"rendered":"<p><span style=\"font-weight: 400;\">Simply put, <a href=\"http:\/\/cryptoslate.com\/cryptos\/oracle\">blockchain oracles<\/a> facilitate accessing, processing, and transmitting information between the outside world of off-chain data and smart contracts. That said, DeFi and applied blockchain apps wouldn't be possible without them.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The data they transmit can come in various forms, given they allow communication with different off-chain systems\u2013including web APIs, cloud providers, e-signatures, payment systems, IoT devices, and other blockchains, amongst others.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">That said, it\u2019s valuable to understand their potential when it comes to increasing blockchain\u2019s utility, what are the most exciting developments aimed to mitigate the trust that is being placed in any of the current oracle solutions, and what roles will these arbiters of truth play in the future of decentralized services.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">To answer these questions, <\/span><i><span style=\"font-weight: 400;\">CryptoSlate<\/span><\/i><span style=\"font-weight: 400;\"> talked to some of the prominent experts on the subject, some of who are going to meet in Berlin this June at the world\u2019s first technologically agnostic <\/span><a href=\"https:\/\/blockchainoraclesummit.io\"><span style=\"font-weight: 400;\">summit<\/span><\/a><span style=\"font-weight: 400;\"> that\u2019s fully focused on oracles.<\/span><\/p>\n<h2><strong>Connecting smart contracts to information outside of their native blockchains<\/strong><\/h2>\n<p><span style=\"font-weight: 400;\">While they already represent a crucial piece of the infrastructure that makes DeFi possible\u2013 ensuring the validity of data in the blockchain ecosystems\u2013oracles are likely to become more prominent as more use-cases move toward Web3.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u201cWhen we looked at a lot of the use cases, we realized that we really needed to actually create the information\u2013we needed to actually answer questions you can put in human language,\u201d explained Edmund Edgar, Founder of Social Minds Inc., who created the world's first smart contract oracle called Reality Keys.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Designed for [cs_coin]BTC[\/cs_coin] scripting back in 2013, Reality Keys didn\u2019t see much usage, however it served as a base for developing Reality.eth\u2013an open source arbitration platform on [cs_coin]ETH[\/cs_coin].<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u201cReality.eth is built to answer any question that you like, and instead of relying on a single entity, it\u2019s crowdsourced,\u201d noted Edgar, explaining how multiple people can answer the question, and the system with bonds was included in the design to incentivize them to answer honestly.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">While mentioning the integration with Gnosis Safe, Edgar noted that Reality.eth is being increasingly used for governance.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Originally a multisig wallet, Gnosis Safe developed into an operating system for decentralized autonomous organizations (DAOs).<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Its SafeSnap module, which is an oracle-based solution that utilizes Reality.eth, <\/span><a href=\"https:\/\/blog.gnosis.pm\/introducing-safesnap-the-first-in-a-decentralized-governance-tool-suite-for-the-gnosis-safe-ea67eb95c34f\"><span style=\"font-weight: 400;\">enables<\/span><\/a><span style=\"font-weight: 400;\"> decentralized execution of governance proposals through an on-chain execution of off-chain votes.<\/span><\/p>\n<figure id=\"attachment_226829\" aria-describedby=\"caption-attachment-226829\" style=\"width: 665px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-226829 \" src=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/03\/Snapshot.png\" alt=\"How SafeSnap works (Source: Gnosis)\" width=\"665\" height=\"230\" srcset=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/03\/Snapshot.png 1130w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/03\/Snapshot-300x104.png 300w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/03\/Snapshot-1024x353.png 1024w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/03\/Snapshot-768x265.png 768w\" sizes=\"(max-width: 665px) 100vw, 665px\" \/><figcaption id=\"caption-attachment-226829\" class=\"wp-caption-text\">How SafeSnap works (Source: Gnosis)<\/figcaption><\/figure>\n<p><span style=\"font-weight: 400;\">\u201cYou take a vote of token holders using a system called Snapshot, and then you use Reality.eth to find out what the vote was, and to pass that information to the smart contract, so it can act on it,\u201d Edgar explained the oracle\u2019s role in the decentralized governance tool suite.<\/span><\/p>\n<h2><strong>Minimizing the reliance on trusted parties<\/strong><\/h2>\n<p><span style=\"font-weight: 400;\">At this point, there are several different types of blockchain oracle services. The most basic typology makes a distinction between first-party and third-party oracles. While first-party oracles are operated by the API providers themselves, the latter are not operated by the owners of the information they serve, but act as middlemen between the data source and the blockchain.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u201cSome oracle services are centralized, while some are decentralized,\u201d explained Steven Liu, Head of Development at NGD and Technologist of Neo Foundation, while adding how their native oracle solution combined different features from both designs.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The [cs_coin]NEO[\/cs_coin] network offers a host of different features to its users, including a decentralized file storage system, an identity system, and an oracle system that enables its smart contracts to access external resources.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u201cOur native oracle API can be requested directly by a smart contract and it involves a node consensus process, which makes it a trustless decentralized service,\u201d added Liu, noting that because it adopts an asynchronous pattern, the request-response processing mechanism doesn\u2019t delay Neo\u2019s block finality.<\/span><\/p>\n<figure id=\"attachment_226831\" aria-describedby=\"caption-attachment-226831\" style=\"width: 657px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-226831 \" src=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/03\/NEO.png\" alt=\"Neo Oracle Service request-response processing mechanism (Source: Neo)\" width=\"657\" height=\"335\" srcset=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/03\/NEO.png 1132w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/03\/NEO-300x153.png 300w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/03\/NEO-1024x521.png 1024w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/03\/NEO-768x391.png 768w\" sizes=\"(max-width: 657px) 100vw, 657px\" \/><figcaption id=\"caption-attachment-226831\" class=\"wp-caption-text\">Neo Oracle Service request-response processing mechanism (Source: Neo)<\/figcaption><\/figure>\n<p><span style=\"font-weight: 400;\">As Liu explained, the Neo council chosen by NEO holders consists of 21 members which have various responsibilities. One of those is to elect oracle nodes that will provide reliable data to smart contracts.\u201d\u00a0<\/span><\/p>\n<blockquote><p><strong>\u201cThese nodes get paid and rewarded for answering oracle requests, however, the Council can remove and even replace them in the case of poor service or wrongdoing.\u201d<\/strong><\/p><\/blockquote>\n<p><span style=\"font-weight: 400;\">When asked about some of the biggest challenges that are surrounding the current research and development of blockchain oracles, Edgar pointed out that thus far, \u201cnobody has really built an oracle that works without trusted parties, while simultaneously being immune to bribery.\u201d\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Oracles are crucial when it comes to utilizing blockchain technology for anything other than native assets, and their ability to leverage true decentralization and ambiguity emerged as a burning issue that will define future systems and services relying on integrity and security of the data.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">While the most common approach relies on third parties that are providing the data and signing the information, token voting emerged as an alternative, more decentralized approach.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u201cOracles determine a smart contract\u2019s input which, in turn, affects what the smart contract actually does,\u201d explained Hart Lambur, the co-founder of [cs_coin]UMA[\/cs_coin], a decentralized financial contracts platform based on the Ethereum blockchain.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u201cWhile blockchain data becomes inalterable after it is recorded on the ledger, it is not verified before, leaving oracles, and by extension smart contracts, open to manipulation,\u201d noted Lambur, arguing that UMA\u2019s optimistic oracle combats this problem using a unique dispute resolution system.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Anyone can push an answer on-chain, and there will only be a dispute if the answer is wrong.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">\u201cWe call this resolution system \u2018optimistic\u2019 as data is accepted as true unless it is disputed,\u201d he said, pointing out that compared to traditional price-feed oracles, optimistic oracles can bring super-specific data on-chain in a way that doesn\u2019t rely on nodes.\u00a0<\/span><\/p>\n<figure id=\"attachment_226833\" aria-describedby=\"caption-attachment-226833\" style=\"width: 621px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-226833 \" src=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/03\/Oracle.png\" alt=\"Plugging into the optimistic oracle does not require using a contract launched on UMA (Source: UMA)\" width=\"621\" height=\"391\" srcset=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/03\/Oracle.png 631w, https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/03\/Oracle-300x189.png 300w\" sizes=\"(max-width: 621px) 100vw, 621px\" \/><figcaption id=\"caption-attachment-226833\" class=\"wp-caption-text\">Plugging into the optimistic oracle does not require using a contract launched on UMA (Source: UMA)<\/figcaption><\/figure>\n<p><span style=\"font-weight: 400;\">\u201cEconomic incentives maintain accuracy as anyone can earn rewards by responding to a query and would lose money if they are incorrect and disputed,\u201d concluded Lambur.<\/span><\/p>\n<h2><strong>Addressing data bias and agreeing on one absolute truth<\/strong><\/h2>\n<p>\u201cWhile we are able to form decentralized organizations, enabling token holders to vote on issues, in theory, there are situations in which it could be profitable to bribe those voters to vote in a certain way,\u201d added Edgar.<\/p>\n<p><span style=\"font-weight: 400;\">Although the token holder voting systems proved to be quite robust in practice, that doesn\u2019t necessarily mean that they can\u2019t be manipulated, according to Edgar.<\/span><\/p>\n<blockquote><p><strong>\u201cYou really don\u2019t see these voting systems breaking right now, but you never know,\u201d he argued, explaining that \u201cwith crypto, you will have things work for a really long time, and then someone will successfully attack one part of it, and then similar attacks will follow.\u201d<\/strong><\/p><\/blockquote>\n<p><span style=\"font-weight: 400;\">\u201cAugur, a decentralized oracle and prediction market platform, kind of has a design with no reliance on trusted parties, but it has what\u2019s called a security bound,\u201d added Edgar, noting that there is a certain amount of money that it can secure without, at least in theory, being \u201cprofitably attackable.\u201d\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In extreme cases, Augur\u2019s approach enables the system to fork into multiple copies\u2013allowing people to use whichever version they like\u2013ultimately revealing which of these systems is more valuable. This approach was originally proposed by Paul Sztorc in the <\/span><a href=\"https:\/\/www.truthcoin.info\/papers\/truthcoin-whitepaper.pdf\"><span style=\"font-weight: 400;\">Truthcoin Whitepaper<\/span><\/a><span style=\"font-weight: 400;\">. Edgar is currently working on a design that takes this a step further, in extreme cases forking an entire layer-2 ledger.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">People who want to interact with each other ultimately need to agree on some kind of common view of the world\u2013adhering to what they determine to be true.\u00a0<\/span><\/p>\n<blockquote><p><strong>\u201cWith the kind of forking approach that Augur uses, it is possible that you end up with two economies,\u201d commented Edgar, underscoring that \u201ca blockchain can\u2019t prove what worldview is correct, but we can allow each worldview to coordinate with itself, and allow people to talk to each other in whatever reality they want to.\u201d<\/strong><\/p><\/blockquote>\n<p><span style=\"font-weight: 400;\">\u201cWe can also determine which worldview is the most valuable in cash terms\u2013but again\u2013that\u2019s not necessarily true,\u201d he added while concluding that \u201cblockchains are a tool for coordinating, and the best that we can do is to coordinate between people with the shared worldview.\u201d<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Simply put, blockchain oracles facilitate accessing, processing, and transmitting information between the outside world of off-chain data and smart contracts. That said, DeFi and applied blockchain apps wouldn&#8217;t be possible without them. The data they transmit can come in various forms, given they allow communication with different off-chain systems\u2013including web APIs, cloud providers, e-signatures, payment [&hellip;]<\/p>\n","protected":false},"author":699,"featured_media":226827,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[46940,37],"tags":[],"post_folder":[],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v21.9 (Yoast SEO v21.9.1) - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Demystifying blockchain oracles: Part 1<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/cryptoslate.com\/demystifying-blockchain-oracles-part-1\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Demystifying blockchain oracles: Part 1\" \/>\n<meta property=\"og:description\" content=\"Simply put, blockchain oracles facilitate accessing, processing, and transmitting information between the outside world of off-chain data and smart contracts. That said, DeFi and applied blockchain apps wouldn&#039;t be possible without them. The data they transmit can come in various forms, given they allow communication with different off-chain systems\u2013including web APIs, cloud providers, e-signatures, payment [&hellip;]\" \/>\n<meta property=\"og:url\" content=\"https:\/\/cryptoslate.com\/demystifying-blockchain-oracles-part-1\/\" \/>\n<meta property=\"og:site_name\" content=\"CryptoSlate\" \/>\n<meta property=\"article:published_time\" content=\"2022-03-24T02:00:43+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-03-24T10:14:03+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/cryptoslate.com\/wp-content\/uploads\/2022\/03\/blockchain-oracle-.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"630\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Ana Grabundzija\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" 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