The monumental rise of decentralized blockchain oracles projects such as Chainlink (LINK) and Band Protocol (BAND), among others, points toward the rapidly growing blockchain oracles space.
While the vast majority of Ethereum-based smart contract platforms are integrating blockchain oracles into their ecosystems, RSK stands out by being the first Bitcoin-based smart contract platform to bridge the gap between data oracles and the most-trusted cryptocurrency in the world.
What are Blockchain Oracles?
The unprecedented popularity of blockchain oracle projects begs the question, what exactly are blockchain oracles, and what is their significance?
To answer this, we first need to consider the technological architecture of a blockchain smart contract protocol.
To recap, smart contracts are virtually automated legal contracts that bind two or more parties to a set agreement. Once the specified condition is met, the contract executes automatically, and all associated entities are discharged of their obligations.
While smart contracts work perfectly with on-chain data inputs, things start to get a little complicated when the execution of the contract is dependent on off-chain data. We will try to get a better understanding of off-chain data through a simple example.
Suppose Juan and Carlos place a bet on the winner of the soccer match between Argentina and Brazil. Juan believes that Argentina would win, whereas Carlos puts his money on a Brazil win. Both the individuals agree on the terms of the contract and lock their funds in a smart contract, which will eventually release all the funds to the winner based on the result of the game (assuming the game does not end in a draw).
However, since the smart contract cannot automatically intake the result of the game – off-chain data – it cannot execute on its own. It is here that blockchain oracles become necessary as they function as a link between real-world dynamic data and the blockchain-powered smart contracts.
In our example, a blockchain oracle, for example, Chainlink, would query a trusted API to find out which team won the game and directs the result to the pertinent smart contract. In turn, the smart contract processes the information and sends the appropriate funds to Juan or Carlos, depending on the outcome of the game.
In a nutshell, blockchain oracles can be thought of as data relayers that fetch the real-world data such as temperature, scores, votes, and others, and feed it to the underlying smart contracts so they can execute the specified conditions. In the absence of such relayers, settling a bet as such dependent on a future outcome would be impossible.
The Problem with Centralized Oracles
Although oracles primarily function as data relayers, there are still a few security risks associated with centralized oracles.
Suppose the security mechanisms of a centralized oracle are compromised. In that case, it may subsequently lead to a compromise in the functioning of the underlying smart contract, thereby bringing the entire infrastructure to collapse. Centralized oracles are particularly susceptible to such problems as they offer several attack vectors to cybercriminals due to their concentrated decision-making infrastructure.
Further, as oracles fetch off-chain data, they are not necessarily a part of the main blockchain consensus. This means that they are also not protected by the robust security mechanisms safeguarding smart contracts functioning on public blockchains.
RSK blockchain seeks to address the aforementioned issues associated with blockchain oracles by tapping the largest decentralized oracle provider in the industry today.
RIF Gateways and Chainlink Oracles
IOV Labs has integrated Chainlink oracles into the RSK smart contracts platform as part of the RIF Gateways service. With this integration, the RSK ecosystem developers will now have seamless access to oracle infrastructure to connect their smart contract applications to dynamic off-chain resources for data collection. Simply put, Chainlink data will be ported to RSK via RIF Gateways.
For the uninitiated, RIF Gateways is RSK ecosystem’s oracle-focused set of interoperability protocols that seek to provide an easy-to-use, hassle-free gateway to developers and enterprises to collect and use oracle or data services to develop blockchain-based applications. To learn more about RIF Gateways, readers are encouraged to go through BTCManager’s in-depth guide on the same here.
The launch of RIF Gateways brings EVM DeFi solutions to bitcoin (BTC) holders along with all the benefits of holding the world’s most trusted cryptocurrency, including the Proof-of-Work (PoW) consensus algorithm-induced security.
Circling back to the integration, Chainlink is the decentralized oracles kingpin in the Ethereum-based DeFi space, and now with the new integration, RSK is bringing the oracles industry leader to the DeFi for Bitcoin landscape.
Chainlink is, by far, the most widely used oracle protocol in the blockchain industry. It is worth highlighting that the RSK blockchain had already integrated Chainlink at the infrastructure level, having deployed its smart contracts on the platform. This forward-looking integration is already on the RSK testnet and concluded just a few weeks ago courtesy of the proactive Chainlink team and the high modularity of the protocol.
At present, the RIF Gateways team is testing reference contracts for prices such as RIF-USD and using the RSK-Ethereum blockchain bridge to enable the smooth movement of LINK tokens from Ethereum to RSK. For those not in the know, the RSK-Ethereum blockchain bridge allows users to send ERC-20 standard tokens back and forth between the RSK and Ethereum networks. This bridge not only enables RSK applications to use the ERC-20 tokens but also benefits them with RSK’s minuscule transaction fees and secured network.
To give an idea of the complete token utilization cycle, the RSK-Ethereum bridge will facilitate bitcoin holders to move their BTC to RSK and build DeFi products secured by the time-tested Bitcoin protocol by using Ethereum’s ERC-20 tokens.
Coming back, the RIF Gateways ecosystem will leverage Chainlink’s oracles to establish a bridge between its smart-contracts and off-chain data-providers, web APIs, Internet of Things (IoT) networks, payment systems, and more. This way, RIF Gateways would help the broader RSK blockchain ecosystem develop increased functionalities across a vast number of industries, including supply chain, finance, banking, and insurance, among others.
A Win-Win Alliance
Chainlink’s integration into the RIF Gateways ecosystem is a mutually-beneficial development as it not only satiates the latter’s requirement for decentralized oracles but also provides Chainlink node operators an additional robust blockchain environment to give their services to. This would subsequently help Chainlink further cement its position as the most widely-used data oracle protocol in the flourishing blockchain space. Additionally, Chainlink brings with itself a plethora of benefits for RSK developers.
Chainlink’s integration involves an extensive collection of independent, security reviewed, and Sybil resistant node operators. RIF Gateways developers will be able to tap this battle-hardened node infrastructure to develop their customized oracle networks.
Seamless Access to High-Quality Data
Many might be unaware of the fact that Chainlink nodes can handle credentials, a mandatory requirement for fetching data from any premium API that necessitates authorized access.
Chainlink offers decentralization at both the oracle and data source level. Developers can tap a network of multiple oracles and other data sources and rest assured about the quality and availability of data.
Blockchain oracles are vital for secure and accurate interaction between smart contracts and the outside world. Their significance cannot be overstated as without blockchain oracles, smart contracts will only be smart in their logic but not their execution.
Further still, decentralized oracles such as Chainlink can eliminate some of the typical risks associated with centralized tech products and services, as discussed earlier in this article.
Chainlink’s integration with RIF Gateways is a welcome step toward not only increasing RSK smart contract’s utility multifold but also indicates how positive synergies among projects can go a long way in the blockchain industry that eventually seeks to democratize and decentralize the economy for a more equitable future.