Automated Oracles And The Gateway to Web3
Web3 Automated Oracles are a revolutionary technology that enables data from the web to be used in smart contracts. This technology has the potential to revolutionize the way we interact with data and digital assets, allowing users to trust and verify information within a secure environment, while bridging the gap between Web2 and Web3.
Given their vital nature in the blockchain ecosystem, we figured it’d be prudent to offer a quick primer on automated oracles and how they work.
What is an Automated Oracle?
An automated oracle is an autonomous agent that gathers real-world information and relays it through a blockchain network for use in smart contracts and dApps.
A key component of Web3 adoption is how well it interacts with the existing Web2 infrastructure. There’s very little value in having a smart contract economy on the blockchain, if we can’t leverage the larger, and more established non-blockchain ecosystem and economy, and use that information. There’s an infinite number of internet-connected devices that are capable of offering value to the blockchain via the digital information reservoir that is the internet. Especially in an era of Iot, data, and APis, it’s important that Web3 offers tools that can make dApps and DAOs off-chain aware.
This information can include anything from stock prices, traffic patterns, sports scores, trending discussion topics, weather forecasts, and cryptocurrency exchange rates. The use of automated oracles eliminates the need for manual input from humans, saving time and resources. Without an oracle, these applications would be unable to use any data outside of the blockchain itself.
How Do Automated Oracles Work?
Automated oracles, such as Chainlink, Gelato, or API3 work by utilizing artificial intelligence (AI) algorithms to monitor and respond to events occurring within other networks, validating it using cryptographic methods, and using software protocols to transfer the data into a blockchain network.
With automated oracles, blockchain-based smart contracts and traditional data and API economies offer immense potential to combine into, and create, hybrid smart contracts and form the future architecture of data-driven automation. By autonomously reacting in response to real-world events via APIs, enterprise backends, payment systems, other blockchains, and so on, without requiring manual intervention, oracles open up exciting possibilities for automating various processes and dApps with trustless connections, with minimal effort on behalf of users or developers. This is exceptionally valuable when it comes to DeFi.
Oracles are capable of multiple functions, including:
Listening and monitoring the blockchain network for any upcoming smart contract requests from off-chain sources.
Fetching and extracting data from multiple external systems such as off-chain APIs hosted on third-party systems.
Formatting the data from the external APIs into a blockchain readable format, and vice versa.
Validating the data, with cryptographic proof attesting to the validity and performance of the oracle, via data signing, blockchain transaction signing, TLS signatures, Trusted Execution Environment (TEE) attestations, and zero-knowledge proofs.
Computing off-chain computations for the smart contract, i.e. calculating a median of various other oracle submissions.
Signing and broadcasting the transaction on the blockchain, to send data and proof on-chain for use by the smart contract.
Sending data to an external system upon the execution of a smart contract, i.e. relaying payment instructions to an off-chain payment network, or trigger other actions.
This means an oracle has to operate both on, and off chain, managing requests and data from both sides, in a scalable, private and secure way.
Automated Oracles and You
Automated oracles provide numerous benefits over traditional methods of data collection such as reduced transaction costs, improved accuracy and security, faster processing times, greater scalability, and more efficient execution of smart contracts, ideally in a gasless manner. This makes them ideal for Web3 businesses looking to improve their operations while reducing their overall costs associated with collecting, verifying, storing, and managing data from external sources.
They can be used in applications ranging from trading platforms and insurance policies to prediction markets and gaming platforms. By utilizing automated oracles, developers can create dApps that make effective use of external data sources while still remaining trustless and secure. In that respect, automated oracles are invaluable.
That said, oracles still have more than a few things they still need to figure out. Namely, decentralization and being able to offer cross-chain data transfers, transactions, and offering a secure way for blockchains to pull in data from, or push data out to any external system as built-in functionality. By nature, blockchains are meant to be isolated networks, but there is inherent value in being able to take on-chain data/transaction, and move it off-chain.
It’s the Oracle Problem, and is something Grindery is actively solving, and is something we’ll be diving into in an upcoming blog.