Oracle

An oracle is a service that supplies blockchains with information from the outside world — prices, weather, sports results, or data from other chains — which smart contracts cannot fetch themselves. Blockchains are deliberately sealed systems: every node must compute identical results, so contracts cannot make web requests or observe anything off-chain. Oracles close that gap by writing external data onto the chain in a form contracts can read.

The stakes are high because a contract is only as trustworthy as its inputs — the "oracle problem." A single data source is a single point of failure, so serious designs decentralize: Chainlink, the most widely used oracle network, aggregates prices from many independent node operators and data providers into on-chain feeds, and Pyth relays prices contributed by trading firms and exchanges. For example, a DeFi lending market like Aave relies on oracle price feeds to decide when a borrower's collateral has fallen enough to trigger liquidation; if the feed misreported the price, positions could be wrongly liquidated or the protocol drained.

Oracle manipulation is a real attack class — several DeFi exploits have worked by distorting a thinly traded price that a protocol naively used as its oracle, then borrowing against the false value. A common misconception is that oracles verify truth; they only relay and aggregate what sources report, so their security rests on the independence and honesty of those sources. Beyond prices, oracles also supply verifiable randomness for gaming and NFTs, and trigger contracts on real-world events like flight delays for parametric insurance.