Preparing For The Web 3.0 Revolution: Smart Contracts & Decentralized Oracles

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Over the past decade, the world has turned to Web 3.0 technologies such as blockchain and cryptocurrencies to solve the problems that the preceding Web 2.0 failed to capture. Global industries have started integrating these technologies with an aim to revolutionize digitized solutions and provide users with privacy and decentralization, giving them greater control over what they create and ownership of their own data.

Nonetheless, blockchain technology is still a long way from being a worldwide solution due to the latency, scalability, and complicated nature of the applications built on them. Additionally, blockchains operate as silos, whereby only on-chain data and information can be processed on the blockchain, which beats the practical use of the technology in industries such as finance, manufacturing, and logistics, which need external data constantly to function properly.

To this end, blockchain developers came up with decentralized oracles, such as Chainlink, to bridge this gap. Simply, decentralized oracles allow decentralized applications (DApps) to link blockchains with an external platform, allowing DApps to utilize smart contracts and execute commands based upon inputs and outputs received from various real-world sources. This has led to the rise of decentralized finance (DeFi), non-fungible tokens (NFTs), GameFi, and several other blockchain sectors.

Without a doubt, oracles have brought life to the core philosophies of blockchains, enhancing transparency, privacy, decentralization, etc. The innovation has worked well for retail users, allowing them to easily access external data on the blockchain and helped spur the growth of several blockchain sectors.

However, decentralized oracles such as Chainlink and Band Protocol still lack the needed infrastructure to support commercial applications on the blockchains. This presents a significant roadblock to the widespread adoption of blockchain technology, especially for businesses. The lack of robust risk mitigation mechanisms could lead to significant losses for businesses that are not yet prepared.

Additionally, blockchain oracles have long suffered from the 'bad actor problem', where some oracles do not offer correct information, leading to commercial risk and possible financial losses for projects.

The solution lies in creating "engaging decentralized oracles'' that mitigate these risks and provide a channel for companies to adopt blockchain without fearing high latency problems. To this end, a few blockchain projects are challenging the dominance of Chainlink, promising to provide oracles that offer commercial firms infrastructure that mitigates commercial risk and provides an optimized oracle system that reduces the 'bad actor problem'.

Solutions to the risks of decentralized oracle networks

As it is, enterprises and businesses entail more money and more sensitive data, hence the need for greater security of oracles and little margin of error. Despite most oracles being tailored for retail users, some projects are developing solutions that remove the risk for big corporations. Decentralized oracles should provide scalable, secure, and correct data at all times to avoid massive losses from oracle risks.

Below we discuss some of the projects creating commercial oracles, aiming to solve the challenges blockchain oracles like Chainlink face.

  • QED Blockchain

Launched in 2020, QED has been touted as the closest competitor to the billion-dollar valued blockchain, Chainlink. The oracle tackles the aforementioned problems via its robust economic model, which connects multiple blockchains, smart contract platforms, and off-chain data sources on one platform. Firstly, QED deals with the problem of commercial risks by underwriting external collateral (rather than a system token) and employing an economic incentive system that ensures more oracle nodes join the protocol. This improves the overall returns for nodes while improving the oracle's overall health and scalability.

The platform avoids poorly performing oracles by diverting fees to the oracles with high historical accuracy. This creates an environment that rewards the most accurate oracles while punishing the defective ones, leading to better data and information for DApps. The QED system ensures complete decentralization for the oracles. The system token manages fees and various incentives to remove risks of collusion or malice. It also contains a staking function that sets global collateral risk levels. This creates an economic feedback system and a decentralized unit of account for the QED system.

  • Witnet

In 2020, oracle manipulation was a hot topic of discussion, as many projects witnessed attacks on their oracles leading to the failure of their ecosystems. In light of this, the Witnet blockchain was developed, leveraging state-of-the-art cryptographic and economic techniques to provide smart contracts with secure and uninterrupted data input.

The Witnet platform runs on its own blockchain to ensure the reliability and security of the data transferred. Additionally, the platform introduces a native, WIT coin, to incentivize independently run oracle nodes that resolve the data requests and agree on the results. In exchange for WIT tokens, Witnet's network of permissionless oracle nodes retrieves, attests and delivers information to smart contracts in a tamper-resistant and decentralized way.

Final words

As Web 3.0 innovation grows, there is a need for reliable and secure oracles to enhance the development of decentralized solutions. However, the current crop of oracles is not built for corporations and businesses, which locks many of them out of the Web 3.0 revolution. Solutions such as QED and Witnet could help businesses simply employ an oracle to communicate with the related database and boost the scalability of oracles to allow businesses to transfer large amounts of data through a secure blockchain channel.