Blockchain Oracles are reference data systems that offer crucial information to the blockchain to execute smart contracts on the basis of validated inputs. Oracles is the word used in ancient Greek Mythology for the sources that provided information to the people for making decisions. Blockchain oracles allow the blockchain to interact with external factors to carry out the validation process before the initiation of smart contract.
For blockchains, the oracles work as translator of information and helps the blockchain get acquainted with external features which could affect the terms of smart contract. Since the blockchain systems like Bitcoin work on distributed ledger system and does not allow altering the transaction in any way, the oracles help avoiding serious errors which could result in bad outcomes arising due to smart contract initiation.
Importance of blockchain oracles
Blockchain oracles make it possible for the smart contracts to stay relevant in real life situations. A smart contract will be a useful tool only when it is applicable in actual business affairs. To make any contract workable, the contingencies prevalent in the actual conditions are to be factored into terms of a smart contract. Thus, oracles help making smart contracts that can respond well to the changing parameters.
Increasing utility of smart contracts
Bitcoin blockchain based smart contracts can become more practical and feasible to implement if the chain is able to interact with other entities affecting it. Some of the actions possible to do with oracles are:
- Provide necessary data to blockchain for validation purposes
- Any API can be connected to Blockchain
- Facilitate payments using blockchain-enabled payment systems
- Enable interchain and inter-blockchain connections.
Thus, the overall purpose of business oracles is to go a step further designing a smart contract. It helps the smart contract users to accomplish appropriate actions arising out of this virtual document.