Director of Global operations for MXC exchange, one of the largest digital asset exchanges in Asia.
Smart contracts have a lot of potential, even though they remain fairly limited in approach. Obtaining external data is impossible for a contract on its own. The future will inevitably involve decentralized oracles, which can serve many different purposes.
The Limitations of Smart Contracts
Expanding the use of blockchain technology to forge bonds and agreements between different parties is a logical step in the evolution. I firmly believe smart contracts are the next frontier in this industry, even though they are still in their infancy stage of development. Currently, smart contracts are primarily used for a handful of use cases, most of which will never attract attention outside of the cryptocurrency community.
To change that narrative, smart contracts themselves will have to undergo an evolution. One of their key flaws is the inability to access external information in any capacity. One option to explore comes in the form of blockchain oracles. These systems are widely considered to be core building blocks of the blockchain ecosystem. Being able to obtain external information and interface with remains a key hurdle to overcome.
One can state that blockchain oracles are effectively bridging the gap between a blockchain ecosystem and the outside world. It is a big step forward to forge contractual agreements and acquire the necessary relevant information to execute certain conditions. Enhancing the scope in which smart contracts can operate and thrive will make this technology more appealing and potent.
Centralization Remains a Concern
Setting up blockchain oracles can be done in different ways. One common approach is to use a centralized solution, although that poses its own set of risks and drawbacks. Verifying the integrity of data should never be biased, yet with a centralized approach, that is almost impossible to avoid. Tapping into as many reliable data sources as possible, comparing the information, and then processing the details is the only path forward.
After all, an oracle is merely a system that queries and authenticates external data sources and relays the information. It is not an actual data source, but it must be coded to tap into specific data sources. The more sources, the more reliable the information will turn out to be. Whether it is price information, completing transactions, or updating product stock, it needs to be done properly, securely, and without bias.
In my humble opinion, centralized blockchain oracles will have a very short lifespan. We already see dozens of projects explore decentralized solutions, even though most of them opt for one and the same provider. This is another aspect of centralization that will always be a concern in this industry, even though it doesn’t necessarily need to be.
While I do believe Chainlink has the right approach in terms of decentralized blockchain oracles, not everyone should rely on this technology just yet. There are other providers worth exploring in this regard. Cryptocurrency and blockchain want to be taken seriously by the mainstream. To achieve that goal, we will all need to work together to create a future where decentralization is the norm, rather than an option.
DeFi Needs Decentralized Oracles
The decentralized finance segment has gotten a lot of interest as of late. Users want quick access to new launches before they hit platforms like Binance or Coinbase. Several exchanges, such as MXC Exchange, and a few others, continue to push the envelope in terms of providing users with exposure to DeFi tokens and mining. At the same time, we all need to remember this is only one side of the medallion.
Investing in DeFi assets for speculation only is never the right approach. In my opinion, the focus needs to be on decentralization as much as possible. That includes DeFi projects using decentralized blockchain oracles for their unique purposes. Considering how decentralized finance aims to be a more transparent approach to finance, all of the relevant data accessed by the project needs to be as decentralized and verifiable as it can be.
Finding the Right Solution is Crucial
Regardless of how one wants to look at the situation, it all comes down to finding effective oracle solutions. Projects exploring this option need to find ways to maintain their sovereignty without compromising on the overall focus. That may be a lot more difficult than onlookers assume. In its current form, there is no decentralized blockchain oracle capable of suiting every need just yet.
Personally, I think that is a positive sign. Competition needs to emerge in this space to not only explore different options, but also give rise to new and powerful solutions.
Although Chainlink is currently the go-to oracle solution for most projects, I keep my eye on the space to explore what else is out there. One project, by the name of Razor Network, aims to offer “truly decentralized oracles’ A very bold claim to live up to, as there are no second chances to make a good first impression in this industry.
Under the hood, Razor Network leverages network stakers to provide data to smart contracts. This is an unusual way of obtaining information from multiple different sources. It can also offer an incentive to participants to keep providing data and remain honest while doing so. The concept of give-and-take is, in my book, incredibly powerful when it comes to decentralizing anything. People are seemingly not interested in doing too many things without being rewarded somehow.
The future certainly looks bright for decentralized blockchain oracles, especially when more competing services come to market. There needs to be a much broader access to services that focus on decentralized solutions, whether it is at the technology level, or at the data level. When these two segments meet in the middle, I firmly expect great things to happen.
For the time being, there aren’t too many decentralized blockchain oracle providers yet. That situation will hopefully come to change in the future. The demand for solutions like these will keep on growing, especially if they prove to be extremely scalable. Whether that will be achieved in the coming months, or if it will take years, is impossible to predict.
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