Dallas, TX, United States, 09/26/2021 / News Bureau /
The notion of centralization has totally permeated today’s society in all areas, with banking being the most prominent. This gives us the impression that our data is being preserved by trustworthy organizations, but this is not always the case. Centralization transfers entire power from the users to a single organization, posing a serious security concern at times.
We’re reaching a point where we need to decentralize in order to solve security concerns and create a trustworthy and dependable system. This will result in an environment not controlled by a single authority but rather by a collective collection of entities, which provides a high degree of security and moves total control of data from a centralized authority back to one or more trustworthy entities. Decentralized finance, or DeFi, is the result of emerging blockchain + smart contract-based applications.
With the emergence of smart contract-based blockchain frameworks such as Ethereum, blockchain technology has the potential to change companies.
A decentralized, transparent, peer-to-peer system is provided by DeFi apps that employ blockchain and smart contracts to eliminate the need for a central authority, resulting in a multi-billion dollar business. It depends on a lot of external data to be put into the blockchain, such as live currency exchange rates for real-time settlement, weather data for insurance with farmers, inflation data, etc. Oracle comes to the rescue when it comes to accessing and transferring trustworthy data from the outside world onto the blockchain. However, it is crucial to emphasize that Oracle should be decentralized to be more trustworthy and dependable.
Oracles, in a nutshell, serve as a bridge between blockchain smart contracts and the world of external data sources, much as how traditional software applications use API to collect data. Oracles, on the other hand, are a strong source of trusted and credible information from the outside world. A DeFi application on a blockchain, for example, necessitates real-time pricing of BTC/USD. Oracle obtains data from trusted sources and delivers it to the user via the blockchain application.
There are numerous oracles out there attempting to bridge the gap between blockchain applications and external data, but not all of them are successful. A decentralized architecture would be one of the most important characteristics of an oracle in order to provide a trustworthy data source. This becomes highly important in any blockchain application to get on the proper data, which else poses a very high risk. For example, supplying an erroneous BTC/USD rate to a DeFi program may result in a massive loss, occasionally resulting in a lawsuit. As a result, it is strongly advised that any Oracle supplier use decentralization in order to eliminate single points of failure and deliver accurate data.
To prevent weaknesses and offer a blockchain peer-to-peer system, any decentralized oracle provider must rely on the community to choose data sources and validators, as well as the rewarding and punishing process.