Oracles are a way for decentralized web3 ecosystems to gather information from an external data source that doesn’t lie within a blockchain. Why is this useful? Smart contracts exist on blockchains and the problem with them is that they cannot interact with data that exist off chain. This limits smart contracts from updating their information from real world data and events. Blockchain Oracles solve this problem as they bridge the gap between off-chain and on-chain information. Oracles connect to sensors, devices and databases in the real world such as physical sensors, web APIs, satellite imagery, weather information, legal data and more and can port that information to the blockchain.
One important aspect to note is that Blockchain Oracles must be decentralized and not centralized. The problem with centralized oracles are that they have a single point of failure. If the Oracle goes offline the smart contract will not get the correct data or will not get any data at all and the problem with that is that because blockchains are immutable this information may be lost permanently. It is therefore essential for the Oracle to be decentralized to prevent any downtime and increase reliability.
dNFTs or Dynamic NFTs are a relatively new form of NFTs which allows the metadata in the NFTs’ smart contract to be updated whenever a specific event triggers a change. Use cases for Dynamic NFTs can be see in games where an avatar can change its appearance based on completing specific levels or picking up a new weapon or superpower. A blockchain Oracle would grab information from the game and send it to the avatar’s NFT smart contract, which would then change the appearance of your player in the game.
Another use case is in physical assets such as a house for example, bridging the gap between the physical and digital. Metadata within the smart contract updates whenever there is a sale, the value of houses in the area rise or maintenance is done on the house. The blockchain Oracle communicates that data with the smart contract by sending data to it from let’s say a real estate database that holds the value of the house, or with the maintenance companies database.
Similar to how baseball cards are collectible items, NFTs can represent rare digital assets that become collectibles for interested hobbyists. These collectibles can be issued as rare cards based on specific real-world events. For example, WAX and Topps have discussed the minting of rare baseball cards based on statistical achievements, such as a player breaking the home run record. Oracles can connect smart contracts to web APIs for verifiable sports data to facilitate card creation.
An interesting avenue of exploration is giving users access to rare in-game items based on the completion of specific off-chain objectives. For example, games can incentivize kids to exercise or study by rewarding them with special NFT tokens like rare in-game powers when they register enough steps on their Fitbit or get good grades. Merging healthy lifestyles or academic success with gaming rewards encourages positive feedback loops in society. Oracles can connect IoT data to the minting smart contract to determine whether or not the user receives the NFT.
Event-driven NFTs can also serve as fan rewards. For example, if a football player scores a hat-trick, there will be three limited edition tokens minted throughout the city that rewards the finders with special access to meet the players. Another scenario is if the Lakers score 100 points, there will be 20 half-off coupons for Mcdonalds scattered around the city in an augmented reality type retrieval process.
Oracles allow for new interesting opportunities opening the door to bridge the real world with smart contracts, the blockchain and NFTs. The ability for Oracles to communicate with IoT devices, weather data, and basically any off-chain database and send that information back to a blockchain smart contract will usher in a new era of innovation in this space.