Overview
Blockchains are 'closed systems'—they cannot natively access data from the outside world (like weather, stock prices, or sports results). Oracles act as bridges, fetching this data and feeding it into smart contracts.
Types of Oracles
- Software Oracles: Fetch data from online sources (APIs, websites).
- Hardware Oracles: Fetch data from physical devices (IoT sensors, RFID tags).
- Inbound/Outbound: Oracles can either bring data in or send data out to external systems.
The Oracle Problem
If a smart contract relies on a single, centralized oracle, that oracle becomes a single point of failure. Decentralized oracle networks (like Chainlink) solve this by using multiple data sources and validators.