Can blockchain solve its oracle problem? – Cointelegraph Magazine

A paradox lies at the heart of s>“Parametric insurance is happening,” Nazarov tells Magazine. He’s delivered many talks on the subject over the past five years, and Chainlink is investing heavily in this area. But it takes time, he continues. In the blockchain industry, it’s commonplace that “nothing happens — and then everything happens.” Decentralized insurance might follow the same pattern. “They basically need to reach a tipping point, a certain threshold — at which point they begin to take on a life of their own.”

Easier said than done

Others have said decentralized oracles as currently configured are often sluggish, costly and subject to selection bias.

To this last point, oracles are used in prediction markets to decide the outcome of real-world events, like elections or sports events, and if the truth oracle is decentralized, the “outcome” is often determined by a vote. In that case, “You need to have a group of honest voters,” economist Chuanwei “David” Zou, founding partner at Nanhu Financial Corporation, tells Magazine. By this, he means a group that accurately represents the voting population.

You don’t want a cohort of all Republican or all Democratic voters to determine the outcome of a tight election; rather, you want a representative sample of Republicans and Democrats. This isn’t always so easy to do.

“A truly decentralized oracle network must be one where the data sources are chosen by the community, the validators are elected by the community, and the rules around staking, including rewards and slashing penalties, are also set by the community and not by a central authority,” adds Umbrella’s Kim. “The ideal way to ensure that oracle nodes operate independently and with integrity is for the oracle itself to employ a delegated proof-of-stake (DPoS) consensus model on its own blockchain.”

Are oracles critical for blockchain?

To what extent does the future of blockchain technology depend on its ability to develop trusted, tamper-free oracles of truth?

“It’s crucial, if we want the blockchain to be useful for anything other than native assets (e.g., native token, like Bitcoin for the Bitcoin blockchain),” says Halaburda, while Jha adds: “If you don’t have trustworthy external data, you can’t take advantage of the full power of blockchain. […] If a blockchain can’t connect to the real world, it’s like having a computer without the internet.”

“As the market starts to mature, and both DApps and their respective user bases start to look for more sophisticated applications, data representing title and ownership of real estate, intellectual property and other physical and non-physical assets will begin to emerge,” says Kim. “And thus oracles will be well-positioned to provide the bridge between off chain and on chain as these emerging applications are deployed and gain adoption.”

There are other areas where blockchain technology can make a big difference, like validating educational degrees, but decentralized oracles are probably not going to be at hand anytime soon, so the industry may just have to make do with centralized oracles. “Decentralized oracles work great for information that is verifiable from many different sources — e.g. getting price pairs from different exchanges/data providers,” Joshua Ellul, a senior lecturer at the University of Malta and director of its Centre for Distributed Ledger Technologies, tells Magazine.

However, in higher education, data is very centralized, and “The University can attest to a student’s certificate and only that University,” he adds.

Web3 and beyond

As the world moves toward Web3, some believe that the human element can and should be removed from governance decisions in key technologies, including oracle technology. This may be naive.

People sometimes lose sight of the fact that algorithms are created by human beings, says Petrowski, and that “They don’t eliminate bias — they just hide it.” While purists might like to have everything decentralized and automated — a world where software code “rules” — blockchain oracles might still require some degree of human oversight to guard against selection bias and other potential problems.

Moreover, it would be a great loss if blockchain oracle technology never evolves much beyond providing price feeds for DeFi projects, adds Petrowski:

“We can do so much more than a spreadsheet with technology like this. If it is restricted to prices and data, it would be a big loss of opportunity.”

Petrowski can imagine a blockchain-based satellite registry, for example, that would manage the launching of satellites on a global scale, with some resource allocation capability. He can envision something like a Grand Oracle Committee — a group composed of academics, judges and journalists, among others, to help decide some of the fuzzier oracle cases and to ensure that one country or group doesn’t snatch up all the registrations, for instance.

Others believe oracles and blockchain technology are now at an inflection point. “The launch of blockchains and smart contracts has demonstrated tremendous potential for the building of new business models,” said former Google CEO Eric Schmidt, who recently signed on as a strategic adviser to Chainlink, “but it has become clear that one of blockchain’s greatest advantages — a lack of connection to the world outside itself — is also its biggest challenge.”

One of the decade’s “most important technologies”?

Many anticipate escalating demand for oracle technology. Indeed, former Coinbase chief technology officer Balaji Srinivasan said recently that crypto oracles are “going to be one of the most important technologies of this decade.” Is that going too far?

“I completely agree” with Srinivasan, Nazarov tells Magazine. “Oracles will take us from a world of weak trust assumptions to a world powered by cryptographic truth — which is a better world for everybody.”

Looking ahead, “The need to transfer information like rainfall data to help farmers in rural areas is huge,” says Jha. “These applications have value in the real world, and oracles will be essential for ensuring the integrity and security of the data underlying all up-and-coming blockchain-based projects that have real world utility and application.”

What’s clear is that in a world where anyone can say anything on any subject — and with the push of a button, broadcast it around the globe — society has an urgent need for reliable arbiters of truth. Many oracles will be decentralized, but not all, and certainly not all at once. They are likely to evolve beyond the decentralized finance and prediction markets, too, securing smart contracts in areas as disparate as the environment, education, supply chains and even international politics.

The process is not likely to be fully automated, either. At some point, human beings will have to intervene — to decide who or what is a worthy “oracle node” (i.e., data source), if nothing else.