Decentralized oracles: Bridging blockchain and real-world data

Oracles are an important part of Open Money. They securely connect blockchains to external data sources and enhance smart contract functionality

As a quick refresher, the Open Money framework is built on the idea of decentralization — trustless, permissionless, and open systems that anyone can use. But like we talked about in the previous post about bridges, the independent architecture of blockchain can, by design, can create a sense of isolation. This is particularly true from a data awareness perspective.

What I mean is that blockchain systems, by themselves, don’t have native access to real-world data like asset prices, weather conditions, or other kinds of situational awareness, including the basics, like time.

And this is exactly why oracles were created. They provide a mechanism to give blockchain systems more context, which creates new kinds of functionality.

Oracles are a critical component of Open Money because they allow smart contracts to interact with external data.

Without oracles, decentralized finance (DeFi) protocols wouldn’t know the price of ETH, insurance contracts wouldn’t be able to verify weather conditions, and blockchain games wouldn’t be able to generate verifiable randomness.

In short, oracles expand the capabilities of smart contracts beyond onchain interactions, unlocking real-world utility for decentralized applications.

How oracles work

At their core, oracles act as bridges between blockchains and the outside world. When a smart contract requests external data, an oracle fetches and verifies that data before feeding it on-chain. This can be done in several ways:

Inbound oracles bring real-world data onto a blockchain (e.g., price feeds for DeFi protocols).
Outbound oracles send blockchain data to external systems (e.g., triggering a payment in a traditional banking system when a smart contract condition is met).
Cross-chain oracles relay information between different blockchains, helping them communicate seamlessly.

The power of oracles comes with a challenge: trust. If a smart contract relies on a single, centralized oracle for critical data, the entire system becomes vulnerable to manipulation, downtime, or fraud. This is known as the "oracle problem."

Decentralized oracles solve this by aggregating data from multiple sources, using cryptographic proofs, and leveraging economic incentives to ensure accuracy and reliability.

The takeaway here is that a decentralized financial system can’t rely on centralized oracles without undermining its core principles.

Some examples of decentralized oracle networks include:

Chainlink – The most widely adopted decentralized oracle network, Chainlink secures billions of dollars in DeFi by providing reliable, tamper-proof data feeds.
Pyth Network – A high-speed oracle designed for low-latency data delivery, Pyth is particularly useful for high-frequency trading applications.
API3 – A decentralized API network that allows data providers to operate their own oracles, reducing reliance on middlemen and increasing transparency.

Oracles are more than just data providers; they are an essential layer in the decentralized stack, enabling Open Money to interact with the broader digital and physical world. As blockchain adoption grows, so too will the demand for secure, decentralized, and efficient oracle networks.

This post is part of the Open Money Project, an ongoing series that forms the basis of a longer work. Subscribe to get a weekly update as it unfolds.

How oracles work

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