What is an Oracle?

An oracle is a tool or service that delivers real-world data to blockchain smart contracts. Blockchains are secure and decentralized, but they can't access information outside their own network. Oracles solve this limitation by acting as a bridge between the blockchain and external data sources.

For example, a DeFi app that needs the current ETH/USD price to settle trades will use an oracle to get that price. The oracle fetches the data from trusted sources and delivers it to the smart contract so it can execute correctly.

There are different types of oracles: some bring in data from APIs (data oracles), some check if certain events happened (event oracles), and others send blockchain data to off-chain systems (outbound oracles). Decentralized oracles, like Chainlink, use multiple sources and nodes to avoid relying on a single provider, improving accuracy and reducing the risk of manipulation.

Oracles are critical for many Web3 use cases—DeFi, insurance, gaming, and real-world asset tokenization—because they allow smart contracts to interact with the real world in a trustworthy and automated way.

Without oracles, blockchains would be cut off from external data, limiting their ability to power advanced applications that rely on real-time information.