the reason behind the problem

Blockchain works in an isolated environment and cannot communicate with the outside world or with other blockchains naturally. In addition to the serious limitations, these characteristics are also an important aspect of ensuring security. Oracle serves as a middleware solution that connects the blockchain to the outside world. We achieve this goal by building complex blockchain applications and providing all the data we need to enable real-world use cases.

This naturally revolves around the financial side (i.e., token generation based on real-world data), but can be applied to a wide range of areas, typically from supply chain management to entertainment. At first glance, Oracle may seem completely inconsistent with the blockchain principles. For example, if a blockchain application requires data from a centralized source, such as Oracle, it is no longer decentralized.The key here is to have the effect of killing two birds with one stone to inject real data into the chain in a distributed way that poses no risk to applications or protocols built on the blockchain. That's the whole Oracle thing.

Defining The Oracle Problem

One of the first references to the term can be found in a Reddit post at the end of 2014, before the Ethereum environment for smart contracts began. In the article, the author shares his thoughts on the lack of decentralization in the initial application of the trust. Of course, it's a very interesting book from today's point of view. A high-level definition of Oracle Problem can be found in an article written by Jimmy Song.

The digital world needs to "know" about the physical world. This is called the "Oracle Problem."

Blockchain's 'lack of external connectivity' is also used as a basic definition in the data created by Chainlink, which has played the largest role so far in the Oracle market. Brian Curran more specifically defines the issue as "security, authenticity, and trust conflicts between third-party oracles and the unreliable execution of smart contracts." So in this context, the questions we need to ask are as follows.

How can you demonstrate that a network is truly decentralized when a single object controls its true connection to the real world?

This often makes Oracle a single point of failure for many Web3 projects. You cannot resolve an Oracle issue without resolving this issue. Another aspect of this problem lies in the design of the Oracle ecosystem, as the network must have mechanisms to resolve disputes. This is usually done by implementing a voting system between nodes. But such a system is vulnerable to bribery and collusion. We can safely assume that if the potential rewards of bribing a node or colluding with a node in such a network are greater than the cost, it will eventually be used. Therefore, even after you truly decentralize the system, you still need to ensure the reliability of the system. If the cost of deceiving an ecosystem is always greater than the potential benefits of doing so, a network can be called economically safe. In this case, in order to ensure that this network is fraudulent, it is not necessary to assume that the node is honest, but simply economically reasonable.

Areas to be covered

Oracle troubleshooting can be divided into three main areas.

Scalability—Enables Oracle to process tens of thousands of transactions per minute at no significant gas cost (Data Latency vs Data Cost dilemma). The more often you import data, the more you have to pay. With standard Oracle solutions, the cost of importing data can also increase exponentially as latency increases. Adequate scalability also means Oracle can continue to operate in extreme market conditions, such as an event known as Crypto Black Thursday.

Incentivization - Design an appropriate incentive structure to ensure cryptographic economy security. This has long been a major design flaw in the leading Oracle solution that critics have pointed out. There is no protocol yet available to resolve this issue.

Dispersion - Removes a single point of failure. Ensure that malicious actors still cannot effectively attack the network even if they access the technology behind the Oracle network (i.e., company employees). No Oracle provider is yet available to resolve the issue. That's why exploring new approaches and putting a needle in innovation is critical to ensuring long-term security across DeFi and the blockchain. That's what our team behind Redstone is very committed to.

the reason behind the problem

Blockchain works in an isolated environment and cannot communicate with the outside world or with other blockchains naturally. In addition to the serious limitations, these characteristics are also an important aspect of ensuring security. Oracle serves as a middleware solution that connects the blockchain to the outside world. We achieve this goal by building complex blockchain applications and providing all the data we need to enable real-world use cases.

This naturally revolves around the financial side (i.e., token generation based on real-world data), but can be applied to a wide range of areas, typically from supply chain management to entertainment. At first glance, Oracle may seem completely inconsistent with the blockchain principles. For example, if a blockchain application requires data from a centralized source, such as Oracle, it is no longer decentralized.The key here is to have the effect of killing two birds with one stone to inject real data into the chain in a distributed way that poses no risk to applications or protocols built on the blockchain. That's the whole Oracle thing.

Defining The Oracle Problem

One of the first references to the term can be found in a Reddit post at the end of 2014, before the Ethereum environment for smart contracts began. In the article, the author shares his thoughts on the lack of decentralization in the initial application of the trust. Of course, it's a very interesting book from today's point of view. A high-level definition of Oracle Problem can be found in an article written by Jimmy Song.

The digital world needs to "know" about the physical world. This is called the "Oracle Problem."

Blockchain's 'lack of external connectivity' is also used as a basic definition in the data created by Chainlink, which has played the largest role so far in the Oracle market. Brian Curran more specifically defines the issue as "security, authenticity, and trust conflicts between third-party oracles and the unreliable execution of smart contracts." So in this context, the questions we need to ask are as follows.

How can you demonstrate that a network is truly decentralized when a single object controls its true connection to the real world?

This often makes Oracle a single point of failure for many Web3 projects. You cannot resolve an Oracle issue without resolving this issue. Another aspect of this problem lies in the design of the Oracle ecosystem, as the network must have mechanisms to resolve disputes. This is usually done by implementing a voting system between nodes. But such a system is vulnerable to bribery and collusion. We can safely assume that if the potential rewards of bribing a node or colluding with a node in such a network are greater than the cost, it will eventually be used. Therefore, even after you truly decentralize the system, you still need to ensure the reliability of the system. If the cost of deceiving an ecosystem is always greater than the potential benefits of doing so, a network can be called economically safe. In this case, in order to ensure that this network is fraudulent, it is not necessary to assume that the node is honest, but simply economically reasonable.

Areas to be covered

Oracle troubleshooting can be divided into three main areas.

Scalability—Enables Oracle to process tens of thousands of transactions per minute at no significant gas cost (Data Latency vs Data Cost dilemma). The more often you import data, the more you have to pay. With standard Oracle solutions, the cost of importing data can also increase exponentially as latency increases. Adequate scalability also means Oracle can continue to operate in extreme market conditions, such as an event known as Crypto Black Thursday.

Incentivization - Design an appropriate incentive structure to ensure cryptographic economy security. This has long been a major design flaw in the leading Oracle solution that critics have pointed out. There is no protocol yet available to resolve this issue.

Dispersion - Removes a single point of failure. Ensure that malicious actors still cannot effectively attack the network even if they access the technology behind the Oracle network (i.e., company employees). No Oracle provider is yet available to resolve the issue. That's why exploring new approaches and putting a needle in innovation is critical to ensuring long-term security across DeFi and the blockchain. That's what our team behind Redstone is very committed to.