Oracles in Decentralised Web
Updated: Feb 2, 2022
The Oracle is a major supporting character in The Matrix franchise. She is a program with such insight into human psychology that she has clairvoyant abilities. In one of the encounters with Neo, it is she who directs Neo to find the entryway to the Source by finding the Keymaker, a program that can open hidden and locked backdoors within the Matrix.
The Matrix franchise a fictional series will help us relate to a number of concepts in what is being called Web 3 - the Decentralised Web. Let us talk about Oracles today. Oracles are systems that provide external data sources to execute smart contracts. They live and are managed off chain - and their data enabled distributed apps (dApps) perform actions and make decisions. To provide a loose analogy, if the blockchain were the computer, we could say the Oracles provide internet access to it.
There exist Oracles that handle a number of use cases today - a small selection is captured here.
Bonds are used to raise capital. Oracles can provide various verifiable data such as interest rates, debt scores, fiat payments, and more to settle bonds on an ongoing basis.
Energy sector: In order to improve efficiencies in energy delivery, energy industry data Oracles can feed consumption rates into a smart contract to trigger over-consumption penalties, levy CO2 taxes, and provide current energy prices to fairly generate electricity bills and allow payments in different currencies. Smart contracts can take readings from smart meters to monetise someone’s output, track consumption, and facilitate payouts between the two.
Social media and identity management oracles can tie ownership of domains onto the blockchain. This improves user experience, as the oracles help transform the long hexadecimal crytographic addresses into human-readable names like “chad.crypto”.
A number of new Oracle ideas are currently at different stages of development across a number of sectors and there are a number of platforms (e.g Polygon, Chainlink)that provide the frameworks and capabilities to build more. A few in a nascent stage can be referenced here.
Now, back to Neo and The Matrix! Whereas Oracles certainly power and steer the dApps to execute transactions and contracts in the blockchain, there is another aspect that calls for some thought. I read today that the Indian government plans to tax any digital asset transactions. Many countries are also going to issue crypto versions of their currencies. Those of us wondering what the shape of a regulatory framework may look like and provided we see regulatory convergence ever in the crypto space, may perhaps see Oracles hypothetically become a mechanism to enforce some level of control and compliance among the dApps!
Your thoughts and contribution to the discussion is welcome.