Oracles with Commercial Applications on the Blockchain: An Economic Security Analysis
How can you bet on a soccer match and use smart contracts to ensure payment?
How would anyone code the result of a future event into a smart contract even before it occurs? Let’s find out.
Today, the Blockchain Industry faces the same issues as the IT sector in its early phases. Individual networks are finding it challenging to communicate with each other and the outer world, leading to a poor user experience.
Blockchain cannot interact with the real world on its own. Further, blockchains cannot connect with legacy systems like a match scorecard. A solution to the problem is a blockchain oracle.
What are Blockchain Oracles?
Blockchain Oracles are the services that transfer information to smart contracts from the outside world and vice versa. Smart contracts get executed based on a specific condition, such as an exact date, the highest bidder, or the number of votes on a proposal.
Blockchain Oracles fill dynamic information as it takes place to the smart contracts. They feed the real-world data into a blockchain smart contract.
There are several blockchain oracles, but only a few of them support commercial applications on the blockchain. This article explores a few blockchain oracles that support commercial applications based on the security of information
Chainlink is a blockchain oracle that provides general oracle services. Though they do not offer any specialized services, they had the pioneer’s advantage in blockchain oracles and now are the biggest oracle platform.
They have an on-chain system of inputs and outputs but an off-chain reporting. Further, Chainlink uses its LINK token as collateral which includes systemic risk like the death spiral.
Though it requires collateral for becoming nodes, investors and nodes decide the staking amount, not customers. Further erroneous data does not result in heavy penalties, just a slashing of stakes.
Provable is a blockchain oracle that enables various services such as finance, gambling, insurance, etc., into decentralization. It is primarily used for dApps.
Though Provable provides security audits for its clients, it does not have an in-built security mechanism. As a result, any mistake or loophole in the system would stay as long as the smart contract is alive.
Use cases for such services would be casinos, car insurance, small loan services, etc., where the dispute rate is high. In addition, business owners can use oracles for the services where monitoring every financial contract is impossible.
For example, say 500 people are at an online casino at a given time. How would the casino owner ensure that losing customers pay their dues? In those situations, blockchain oracles would do wonders.
To know more, you can read its founder Thomas Bertani’s interview.
Umbrella Network is a network of decentralized oracles. It claims that its oracles have Sybil resistant nodes and gathers data from various sources to prevent any contract execution failure.
It is highly decentralized and has a DAO for its governance. However, the validator (nodes) registry is centralized. In case of any failure of data or a rogue node, the action to remove from the registry is manually executed, which seems like the centralization of the registry.
QED is a blockchain oracle that has decreased the refresh rate from a 120s period (of industry leaders) to just 0.5s, lower than the Supra Oracles too. Further, users can use QED for almost all blockchain oracle needs.
To discourage rogue nodes, it uses a simple technique. The second layer of highly accurate nodes is used to resolve a dispute in the case of a rogue node. Further collateral required to become a node is not in a native token. This oracle is the only one on our list with an inbuilt compensation mechanism for aggrieved customers.
Witnet is yet another blockchain oracle specializing in randomness oracles. These oracles respond with random data to any request. Users can use random oracles to generate nonce values that can be used to replace cryptographic hash functions. The oracle can help solve the threat of quantum computing that can be used to know the nonce values and is a significant threat to blockchains.
It uses a reputation score to punish rogue nodes. The Witnet ecosystem has its own token, which adds to systemic risk.
Oracles can solve a lot of communication issues faced by blockchains in a very secure manner. To ensure security, blockchain oracles should have an in-built punitive mechanism to punish corrupt or rogue nodes. In our comparison, only QED and Witnet had this inbuilt mechanism. These mechanisms are important because, as the service scales upwards, it would be impossible to manually look at all inefficient nodes and issues. Lastly, a blockchain oracle can only be as safe as its nodes. Secure nodes would mean better service to users.
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