Oracles & Interoperability: Embedding Blockchains In The Real World
By Nguyen Bui, the Co-founder and CEO of DotOracle
The blockchain industry is expanding globally, harboring diverse applicability and ability to disrupt every business sector, as experts often claim. There has been a steady surge in enthusiasm concerning this domain, among individuals and enterprises alike, underlining bright prospects. Despite all that, it’s naive to think that all is bliss. Consider, for instance, the imminent crest-trough cycles; take a moment to ponder what hinders the technology’s desired mass adoption. For sure, it’s not the lack of potential.
A dilemma haunts the blockchain community, affecting business owners and their clientele, that is, end-users. To be optimally usable and relevant, on-chain ecosystems must connect closely with the off-chain world. However, the connection must rely upon third-party entities, namely Oracles, which is apparently a problem. Therefore, you either fall short of bridging the on-chain and off-chain occurrences, or you involve a third party. At the same time, interoperability is pivotal to mass adoption, which adds another dimension to the problem.
The primary issue with oracles is that they tend to be centralized, even while being blockchain-based. However, this isn’t necessary, considering recent innovations in decentralized solutions for meeting the purpose in question. Interoperability is possible without succumbing to the compromise mentioned above, which is also among this article’s primary subjects. Scalability arrives as a corollary, but we shan’t presently venture into those depths, for it demands focused attention.
The Problem of Siloed Ecosystems
Legacy systems, be it in finance or elsewhere, face immense criticism for being fragmented and siloed, and quite rightly so. For most parts, existing blockchains do not fare much better regarding interoperability, substantially hampering mass adoptions. There’s no dearth of potential for wide-ranging enterprises, but we are falling short in proper integration. In turn, there’s limited usability.
Although many blockchains exist today, they remain in mutual isolation, floating about as islands lacking communication. The future may bring perfect all-rounder blockchains, so to say, but at present, we mostly have specialized ones. Bitcoin, for instance, excels as a secure P2P currency, whereas Ethereum is a haven for decentralized applications. Polkadot already transcends these boundaries, making it quite remarkable, but the general scenario entails fragmented ecosystems.
Presently, the seamless transfer of assets and information between blockchains is mostly not possible. There’s high scope for intermediaries getting involved, whereas collaboration is severely hindered, posing challenges to the domain’s fundamentals. We are also incurring high costs for settling transactions and securing networks. These days, people shudder at the thought of transacting on Ethereum, especially for smaller amounts that befit day-to-day interactions. The problem, however, doesn't end here, as the implications of low interoperability are much broader than is apparent.
A Wide-Lens Vision
By definition, two or more systems are interoperable when they can interact between themselves. Following this premise, interactions between on-chain and off-chain systems are also a form of interoperability. Therefore, a blockchain is truly interoperable when it not only interacts with other blockchains but also with non-blockchain systems. Integrated systems are the need of the hour, whereas most contemporary solutions are being myopic in vision and narrow in scope.
Although very much a part of our realities, most blockchain-based solutions aren’t embedded in the so-called real world. On-chain events almost always remain detached from off-chain happenings, in terms of executing one based on the other. On the contrary, however, most of our financial and non-financial interactions involve multiple digital and physical factors.
One may, for instance, be wary of the likes of Visa and PayPal, but it’s only a fool’s play to deny their relevance in facilitating day-to-day financial interactions. The possibility for varied integrations is pivotal to this ability; blockchains, to succeed fully, must emulate this feature. We need cross-chain communication, in addition to securely executing on-chain contracts using reliable off-chain data; that too, without compromising decentralization.
Oracles: Decentralized Messengers for Blockchains
In Greek mythology, oracles bridge the gap between divine and mortal beings, primarily by predicting futures. There’s no mythology involved when we speak of oracles, no matter how crypto-traders would love such predictions. Nevertheless, our oracles share an essential similarity with their Greek counterparts—both serve as messengers between distinct worlds.
Oracles serve the much-needed purpose of bridging the information gap between on-chain and off-chain domains, thereby facilitating interoperability. As such, computer scientists have employed these techniques for a long, but they gain unprecedented significance in the context of blockchains. Despite manifold implications, the general function of oracles is simple; they feed off-chain data to on-chain (smart) contracts. Based on predefined conditions, the said data (event) triggers the contract’s execution.
For instance, consider a trucking company that is currently delivering high-value material to some manufacturer. To impart immutability and save costs, the tech-savvy counterparties decided to deploy a smart contract to execute funds transfer. Payments are subject to the promised material reaching the destination (say, a factory) safely; apparently, this complicates things.
Fundamentally, neither party can execute the contract at will because that hampers its sanctity and fosters manipulation. So, how does the on-chain contract understand whether the said condition has been met? In the context of our preceding discussion, the answer is obvious—using oracles, which feed data from off-chain sensors for triggering the on-chain contract. At this point, naysayers may espouse the much-debated ‘Oracle Problem,’ as noted in introductory paragraphs. The foremost advice to them is to catch up with the changing times.
Parting Thoughts: A Note for Skeptics
Centralization has been a problem concerning oracles for a long time, but it isn’t anymore, considering promising innovations in decentralized oracle networks. Presently, we even have the elements for creating blockchain-agnostic oracle solutions, which further widens the horizons for interoperability. Furthermore, non-intermediated and trust-minimized verification of off-chain data is also possible by employing robust and byzantine fault-tolerant consensus mechanisms. Through these means, we can also eliminate attack vectors such as man-in-the-middle or other forms of manipulation.
We must no longer lament the lack of resources necessary for healing the interoperability chasm affecting decentralized, blockchain-based systems. Platforms like Polkadot, for instance, remarkably address blockchain-related siloes by adopting a cross-chain and inherently interoperable architecture. One of the ecosystem’s parachains, Moonbeam, is compatible with Solidity Smart Contracts, enabling integrations with the Ethereum Virtual Machine (EVM).
Furthermore, given these innovations, we no longer need to suffer the consequences of Ethereum choking on surging network traffic. Scalability arrives as a corollary, as the reader might remember from an earlier statement in this article. Presently, one can leverage Ethereum’s deep liquidity without facing limitations in scalability, or for that matter, high transaction costs. Doing so is not only possible, but more importantly, is also feasible.
While assets, data, and even functionalities flow seamlessly across chains, we have seen how oracles can integrate on-chain ecosystems with elements in the external world. As a whole, then, we have good reasons to conclude on a positive note. Interoperability still remains a prominent concern of blockchain-based systems, but we are already paving the road to the future. The community of innovators is at least as proficient as the skeptics; the promise is for the world to see. Futuristic oracle solutions, for one, are genuinely embedding blockchains in the real world, and by extension, in our daily lives.
Author Bio: Nguyen Bui is the Co-founder and CEO of DotOracle, x-Director of Marketing & Partnership at TomoChain. He is an advisor at Coin98 Finance with 15 years of experience in Tech marketing & Financial trading. He has an MBA in General Management at Nanyang Technological University.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.