A blockchain oracle bridges the gap between blockchain systems and off-chain data sources, enabling smart contracts to interact with external data sources or connect to an off-chain system.

Oracles in blockchain communicate with external APIs and data feeds in order to feed real-world data into smart contracts or push data from a blockchain.

Smart contracts can securely access real-world data from off-chain sources thanks to blockchain oracles.

Blockchain networks are severely limited in their ability to interact with external sources in the absence of decentralised oracles, limiting their potential applications. This is largely due to the high security of blockchain networks.

Smart contracts can integrate off-chain systems such as external data feeds, payment rails, events, and more using decentralised oracles.

When traders consider real-world smart contract use cases, they discover that the majority of them require off-chain data to trigger execution and integration with existing payment channels to settle a contract.

Oracles in blockchain are third-party services that provide smart contracts with external data, enabling them to interact with real-world information. Since blockchains are isolated systems, they cannot natively access off-chain data. Oracles bridge this gap by fetching and verifying data from external sources, such as market prices, weather conditions, or sports scores, and delivering it to the blockchain in a usable format.

Oracles are crucial for expanding the functionality of smart contracts, allowing them to execute based on real-world events. However, they introduce a potential point of failure, as compromised oracles can lead to incorrect contract execution. To mitigate risks, decentralized oracles and consensus mechanisms are often used. By enabling smart contracts to interact with external data, oracles play a vital role in decentralized finance (DeFi), insurance, supply chain, and other blockchain applications.