The Critical Role of Decentralized Oracle Networks
Blockchain oracles connect blockchains to external systems, allowing smart contracts to execute based on real-world inputs and outputs. Oracles act as a link between on-chain and off-chain data, giving blockchains access to real-world data. This enables the creation of more complex applications capable of interacting with the outside world.
Decentralized Oracle Networks (DONs) compute, manipulate, and analyze data from multiple sources to ensure a high degree of data accuracy and no single point of failure.
Key Objectives for DONs
Hybrid Smart Contracts: Oracles facilitate the interaction between smart contracts and external data sources. This includes securely providing access to off-chain data and external services that can be used to validate and execute transactions.
Scaling: The key design goal for oracles when it comes to scalability is to enable high-performance, reliable data transfer, and contract execution across different networks. This includes ensuring that the data is sourced quickly, securely, and reliably, and that the contracts are executed in a timely and efficient manner.
Abstracting Away Complexity: Oracles abstract away complexity to make it easier for developers to create and deploy smart contracts. This includes providing an easy-to-use interface that allows developers to access external data sources and services without having to learn complex coding languages.
Confidentiality: Oracles ensure that sensitive data is kept secure. This includes using secure protocols and encryption methods to ensure that data is kept confidential and that transactions are securely executed.
Addressing the Front-Running Problem
As the blockchain industry continues to grow, the issue of front-running has become increasingly prominent. Front-running is a type of malicious activity wherein one individual or entity attempts to gain an unfair advantage in a transaction by exploiting the latency of the blockchain network.
To address this issue, firstly, we can implement mechanisms such as transaction batching and prioritization, allowing transactions to be executed in a timely and efficient manner. Finally, we can implement a consensus algorithm that is better able to handle high transaction throughput.
The key concept is fairness. By curbing the front-running that occurs on the blockchain, we can enable transactions to be executed in a more secure and fair manner. By implementing these measures and continuing to monitor the issue, we can ensure that the blockchain industry is able to remain secure and reliable.
Services Enabled by DONs
Proof of Reserves: Oracles can be used to verify proof of reserves by providing reliable and secure data to smart contracts. By using an oracle to verify proof of reserves, developers can create trustless applications that are able to ensure that the data provided is accurate and up to date. Oracles can also be used to verify other types of information such as asset ownership and transaction history.
Decentralized identity: Oracles can help a protocol manage decentralized identity by providing a secure and reliable source of data to validate user identity information. This can be done through the use of transaction data, cryptographic signatures, and other forms of authentication. Additionally, oracles can be used to ensure that data stored on the blockchain is accurate and up to date, allowing users to trust the information they receive from the network.
The role of Oracles in Confidentiality Preserving DeFi
Blockchain transparency is frequently marketed as a benefit. This is not always true. Main Street financial consumers will never adopt blockchain-based financial tools as long as they are completely transparent. Ordinary people have secrets they want to keep hidden.
Decentralized finance is one of the most promising applications for blockchains (DeFi). The developers of DeFi tools want DeFi to be more than just a skate park for the risk-taking crypto-rich. They want their tools to help people and businesses, including America’s 31.7 million small businesses, solve real-world financial problems.
A cash-strapped manufacturer in Toledo, Ohio, has a great idea for a product. Rather than approach a bank for financing, it turns to DeFi and tokenizes their receivables onto a blockchain, using them as collateral and receiving U.S. dollar stablecoins in return. It then uses a decentralized exchange to swap these dollars for Euro stablecoins, which it sends to its French supplier for inventory. This is fast, cheap and avoids the traditional banking system, but the manufacturer is unlikely to take advantage of it as all blockchain transactions are public. Blockchain analytics firms like Chainalysis and CipherTrace monitor and analyze every trade and transaction.
Commerce relies on secrecy. Businesses must not only protect their customers’ privacy, but they must also keep their competitors in the dark lest their long-term strategy be deduced, countered, or copied. Our Toledo manufacturer does not want their on-chain financial preparations to reveal their intentions. Individuals don’t want their friends and colleagues to know how much they make or what kind of porn they watch. Nobody wishes to be doxxed. We enjoy keeping our secrets.
Bricks-and-mortar finance is already capable of providing the secrecy that Main Street requires. Individuals and corporations generally trust their old-school bankers not to reveal information about their financial dealings to others. It’s not quite cash-level anonymity. Yes, there are leaks and hacks. And under certain conditions, a banker must disclose information to law enforcement. But in general, Main Street trusts the confidentiality and probity of its financial provider.
Decentralized Identity
Exciting new potential cases of decentralized identity use are self-sovereign identity (SSI), data monetization, and data portability. SSI is an idea that users can store IDs on their own devices, choosing which pieces to share with data validators.
In turn, as there is a ton of information created on the Internet every day, DIDs help people retain control over their data while guaranteeing options for data monetization. For example, they have the option to rent personal info to AI training algorithms, sell it to advertisers, or share it for medical research.
Finally, DID offer huge value for data portability improvement by simplifying the verification processes. It not only makes life easier for customers but allows organizations to cut costs by skipping lengthy identification procedures.
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Disclaimer
This article is intended for informational and educational purposes only. The views expressed in this article are solely those of the author and do not reflect the views of any organization. The information provided in this article is not intended to be legal, financial, or medical advice, and should not be treated as such. The author does not accept any responsibility or liability for any losses or damages that may result from using the information contained in this article. Readers should seek professional advice before taking any action based on the information provided in this article.
Abiodun Ajayi has more than 6 years of experience in Security and IT architecture. He consults and helps form strategies, and performs project feasibility studies.
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