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Oracle, an Important System for Smart Contract

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Blockchain can store records, but they don't have the ability to bring in external information themselves.

Oracle plays an important role as a system that brings information to the blockchain system.

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Types of Oracle

Within the external information incorporating system, "Oracle", it can be divided into two types, which are the centralized Oracle and the decentralized Oracle.

Centralized Oracle

Centralized Oracle is managed by one management entity.

This management entity can efficiently gather information outside the blockchain system. It is able to manage external data and information by itself responsibly because it avoids damages such as fraud and hacking naturally.

Most of Oracle that is currently working works as a centralized Oracle.

However, centralized Oracle has to "trust" the management entity or the system.

Since it must be trusted that the information from the Oracle is absolutely correct and will never cause a problem, it can not function properly if a problem occurs.

From the above, the effort has been made to develop the decentralized Oracle system.

Decentralized Oracle

Distributed Oracle is an Oracle system that manages all participants' data in a distributed way.

Unlike centralized Oracle, there is not one management entity, therefore there is less risk for information alternation even if it is hacked from the outside.

This idea is similar to the public chain.

Decentralized Oracle, which the data of all participants is difficult to tamper with, seems to be safe at first glance, but it is said that the incentive design to justify the information within the Oracle is difficult.

For example, the validity of the information is established because bitcoins managed publicly have incentives to correctly calculate their transaction records when trading is done.

However, the trade does not happen within the decentralized Oracle, and incentives cannot be given.

Also, in the present situation, whether the external information is really correct, it will take time to form a consensus,

Because of this, most of the Oracles that are actually in use currently are centralized Oracles.

Example of Oracle

Oraclize

Oracle, an Important System for Smart Contract

Oraclize ( http://www.oraclize.it/ ) is the representative project of Oracle.

It is one of the systems that is embedded in the Smart Contract and provides various information to Dapps (distributed application) that utilizing blockchain technology such as the Ethernet.

By combining multiple algorithms with a system called TLSNotary proof, it is able to verify the reliability and then incorporate it into the blockchain.

Gnosis

Oracle, an Important System for Smart Contract

Gnosis ( https://gnosis.pm/ ), which was released in 2017, is a project aiming at a decentralized prediction market platform utilizing the Ethernet blockchain, Smart Contract, Oracle and others.

Augur is famous as the platform of the decentralized forecasting market. However, Augur has a disadvantage. It takes time to find facts because the fact-finding process is done by a majority vote.
(Augur is a decentralized Oracle and a predictive market platform)

Gnosis can set up the setting freely of Oracle, and if you set up Oracle as a reliable information source, you can eliminate the disadvantage of compensation speed.

Summary

So far, blockchain technology has been mainly used for virtual currency. However, with the introduction of Oracle, it can be applied to various business.

Oracle will refer to a system that incorporates external data into the inside.

Currently, the centralized type is running mainly, yet the dissemination of the decentralized​ Oracle can be expected in the future.

Blockchain technology that utilizing Smart Contract is expected to be used in varies fields in the future.

As blockchains are used, they incorporate the industry's unique data inside. Smart contract executes the program based on that information, therefore reliable and correct information is necessary.

For example,

Suppose there is a Smart Contract (contract) to pay by bitcoin on December 31st this year.

In order to do this, the system must incorporate the fact, as a piece of information, "December 31, 2018" from the outside.

This fact (to wait till 31st December 2018) does not exist inside the blockchain network, and it must be obtained from the outside.

Smart Contract will be executed after confirming that fact.

With Oracle, it is able to refer to a system that pulls data from the outside.

In other words, it is a system that connects information of the blockchain and the outside world.

Blockchain system can store records, but they do not have the function to bring in external information by themselves.

Oracle plays an important role as a system that brings information to the blockchain.

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