Web3 Oracles: Bridging the Gap between Smart Contracts and Real-World Data.

Web3 Oracles: Bridging the Gap between Smart Contracts and Real-World Data.

Play this article

Web3 oracles are the key components of the web3 infrastructure for it serve as a bridge between smart contracts and real world-data.

This article will explore the role of web3 oracles, their use cases, challenges, and impact on the blockchain ecosystem.

What is Web3 Oracle?

An Oracle is a web3 middleware that makes possible the connection between smart contracts and real word data. You may be wondering what this "real-world data" is, well it refers to the information that exists outside the blockchain network.

How Web3 Oracles Work

Oracles provide a way for the web3 ecosystem to access existing data, legacy systems, and advanced computation. They act as intermediaries by receiving data from various sources, such as APIs and databases, and feeding it to smart contracts. Oracles follow the process below to operate:

  1. Collect Data: This could be in the form of price feeds, weather information, or any other relevant information required by smart contracts to execute a specific logic.

  2. Verify Data: The oracles validate and verify the data's authenticity after it has been collected ensuring it is accurate and trusted.

  3. Data Formatting: Oracles then convert the validated data into a language that the smart contract understands

  4. Data Feeding: After the data has been verified and formatted, it is then fed to the smart contract.

The Oracles Problem

The idea of oracles giving real-world data to smart contracts seems easy and perfect but poses a huge problem to the decentralized world. The problem that oracles pose include:

  • Lack of Trust: One primary problem faced by oracles is ensuring the integrity and trustworthiness of external data. There is a risk of receiving falsified or manipulated data that will lead to malicious outcomes.

  • Centralization: Another problem faced is centralization. Oracles employing centralized data could disrupt the functioning of smart contracts and the reliability of the system.

  • Scalability: The more data request received the less effective oracles could be.

Oracles are not a part of the blockchain so they neither have a consensus mechanism nor adopt the security system the blockchain offers and this makes them vulnerable. However, Oracles are working towards fixing these problems in order to ensure a healthy and trusted decentralized world.

Web3 Use Cases

Web3 oracles have a wide range of use cases across various industries. Here are some prominent examples:

  1. Decentralized Finance (DeFi): Oracles are extensively used in DeFi applications to fetch real-time price feeds for assets, enabling functionalities such as decentralized exchanges (DEXs), stablecoins, and lending platforms. They provide reliable and up-to-date market data to execute complex financial transactions.

  2. Insurance: Oracles play a crucial role in insurance applications by providing external data to trigger policy payouts automatically. For instance, flight delay insurance contracts can be executed based on real-time flight data retrieved by oracles, ensuring efficient and transparent claims processing.

  3. Supply Chain Management: Oracles enable transparency and traceability in supply chain management by verifying the authenticity and provenance of goods. They can retrieve data from IoT devices, logistics databases, and other external sources to validate the movement, storage conditions, and quality of products within the supply chain.

  4. Gaming and Non-Fungible Tokens (NFTs): Oracles are used in blockchain-based gaming platforms and NFT marketplaces. They provide real-time data on in-game events, game outcomes, and item values, ensuring fair and transparent gameplay. Oracles also enable real-world events to trigger actions within the game or determine the scarcity and value of NFTs.

  5. Prediction Markets: Oracles facilitate prediction markets by retrieving external data and settling bets based on the outcome of real-world events. They provide accurate and verifiable data for participants to make informed predictions and ensure fair payouts based on the correct outcomes.

Examples of Oracles

Chainlink is a web3 oracle that has emerged as a leading solution to the oracle problem. Providing reliable and decentralized data feeds to smart contracts. Chainlink offers several advantages to the web3 application. Here are the features it offers:

  • Decentralization: Chainlink operates on a decentralized system. This decentralized architecture ensures data reliability, security, and resistance to single points of failure.

  • Open source: Chainlink is open source and it adopts a wide community of developers to help out with data verification. Chainlink being open source help solve the problems of oracles by making them more trusted and open

  • Data signing: This help to keep a record of past data feed.

  • Security and privacy: Chainlink prioritizes the security of data transmission and storage. It utilizes secure communication protocols and cryptographic techniques to protect data integrity, preventing unauthorized access or tampering. Chainlink

  • Developer-Friendly Tools: Chainlink provides a range of developer tools, including APIs, SDKs, and extensive documentation. These resources facilitate the seamless integration of Chainlink oracles into smart contracts and streamline the development process for blockchain applications.

  • External adapter Architecture: Chainlink's external adapter architecture enables seamless integration with off-chain systems and data sources. External adapters are customizable modules that connect Chainlink nodes with specific data sources, allowing developers to fetch data from diverse APIs and systems beyond the blockchain.

  • Active Community and Ecosystem: Chainlink has fostered a vibrant community of developers, oracle node operators, and blockchain enthusiasts. The community actively contributes to the growth, adoption, and improvement of Chainlink through collaborations, discussions, and the development of additional tools and solutions.

Band Protocol

Band protocol is a decentralized cross-chain data oracle platform that aims to provide real-world data to smart contracts on various blockchain networks. The features include:

  • Cross-chain compatibility

  • Community

  • Scalability

  • Data sourcing and gathering

  • Decentralization


In conclusion, Web3 oracles play a crucial role in expanding the capabilities of blockchain-based applications by enabling the seamless integration of real-world data. They provide the necessary link between smart contracts and external information sources, making decentralized applications more powerful, dynamic, and capable of interacting with real-world events and conditions.Web3 oracles have the potential to revolutionize not only blockchain applications but also traditional industries by enabling the seamless integration of real-world data into automated systems. As developers, researchers, and industry stakeholders continue to collaborate and innovate, Web3 oracles will undoubtedly play a vital role in shaping the future of decentralized applications and smart contracts.