What is a blockchain oracle? How smart contracts learn about the real world
By SendPay Business · · 2 min read
A blockchain can only see what happens on the blockchain. A smart contract cannot check a currency price, a sports score or the weather by itself. An oracle is a service that brings that outside information onto the blockchain so contracts can use it.
What oracles are used for
The most common use is price feeds: lending and trading apps in decentralised finance need up-to-date prices to work out loans and trades. Oracles are also used for insurance payouts, games and anything else that depends on real-world events.
How they work
- A smart contract asks for a piece of data, such as a price.
- The oracle collects it from one or more outside sources.
- It posts the answer on the blockchain.
- The smart contract reads the answer and acts on it.
The oracle problem
A smart contract is only as reliable as the data it gets. If an oracle is wrong, slow or manipulated, contracts can pay out wrongly, and some DeFi apps have lost large sums this way. Many oracles now combine data from several independent sources to reduce the risk.
Where SendPay fits
SendPay does not run smart contracts or oracles. SendPay crypto platforms let your customers buy, sell and hold crypto next to their cash, with assets held with regulated partners.
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This guide is general information, not legal or financial advice. SendPay Business is a technology company, not a bank, and does not take deposits; regulated services on the platforms are provided by licensed partners. PayPal, Patreon and Substack are named as reference points only and are not affiliated with SendPay Business.