Oracle

Harris Kyriakou and Yegin Genc

Chapter 32 in Elgar Encyclopedia of Cryptocurrencies, Blockchain and DLT, 2026, pp 159-162 from Edward Elgar Publishing

Abstract: Blockchains, by design, operate in a self-contained environment where smart contracts can only access on-chain data. However, many real-world applications—such as financial services, insurance claims, and supply chain management—require external information to function effectively. Oracles serve as intermediaries that fetch, verify, and transmit external data to smart contracts, enabling them to interact with real-world events and execute actions based on conditions that exist outside the blockchain. Without oracles, smart contracts would be limited to information already stored on-chain, severely restricting their practical utility. Oracles address this key limitation in smart contracts by enabling them to access external data, by creating a bridge between blockchains and the external world, and by fetching, recording, and validating external data to make it accessible within the blockchain environment. They come in various forms, including centralized, decentralized, inbound, and outbound, and can involve human, software, computational, or hardware agents. Oracles also differ in consensus mechanisms and time intervals for data retrieval. While essential, oracles introduce trust-related concerns due to their third-party nature, potentially impacting the overall reliability of blockchain systems. Oracles are instrumental in bridging blockchain environments with real-world systems. While their third-party nature continues to raise debates about reliability and trust, they enable advanced functionalities like insurance claims processing, cross-border payments, and decentralized finance applications.

Keywords: Oracles; Smart contracts; Consensus mechanisms; Reliability; External data; Data integration (search for similar items in EconPapers)
Date: 2026
ISBN: 9781035339952
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