Most DeFi (decentralized finance) apps wouldn’t exist today without oracles. DeFi projects are powered by blockchain and smart contracts that, by default, cannot access data from beyond their network. Real people are using these apps and real-world events are influencing the in-app data as much as they are influencing our daily lives. In order to have an on-chain economy that is relatable to the real world, smart contracts need to have the ability to access the outside world.
Another important feature of blockchain is its immutability. We know that once written on-chain, the history cannot be altered. The smart contracts running on this chain are known to be incorruptible. But at the end of the day, computer code will always run as it was initially programmed to. The average user might not be tech-savvy enough to understand the computer code, but the fact that the code is transparent and publicly available to read gives experts all around the world the ability to verify its authenticity for themselves and share their opinions. So where does data from the outside world fit into this scheme?
Due to the fact that smart contracts exist on-chain in a digital format, the only data that can reach a smart contract is electronic data. That’s why oracles, by definition, are software services that verify external information and feed it to smart contracts in a digital format. Based on the data they receive from the oracle, the smart contracts will trigger certain changes on the blockchain. While the smart contract is transparent and the triggered actions are known beforehand, data from the outside world is the biggest influencer in what the blockchain state will be in the future.
You might be already aware of the expression “blockchain is trustless”. However, the advancement of decentralized technology brought us oracles that are taking over one of the biggest responsibilities in keeping a blockchain network decentralized: being trustless!
Oracles are third-party services. They are not part of a blockchain’s consensus mechanism, and they add one more link to a chain where “man-in-the-middle attacks” could weaken the trust. The so-called ‘Oracle Problem” refers to the fact that if an oracle is compromised, the smart contract is also compromised.
Yet, what most people don’t know is that most oracles services used by DeFi projects are actually centralized systems with a single point of failure!
The most popular ‘centralized’ oracle service, Provable, is essentially just a software solution that requests data from a database API, verifies it through hardware sensors, then broadcasts it as a transaction to other blockchains. There’s nothing wrong with it as it serves its purpose, but having a single entity as the main external data source for a smart contract could become dangerous in a situation where the software is being corrupted. If the attackers gain control of the oracle they could broadcast malicious content to the smart contracts in order to reach their desired outcome. It’s not as easy as looking for another oracle, since by the time the team will realize this, the attack will already have had a ripple effect over all blockchain networks that used it.
Can oracles be decentralized?
Decentralized oracles are working in a similar way as public blockchains do. Instead of relying on a single source of information, a decentralized oracle can choose to query many sources at once to increase the accuracy of the data. The result is determined through a consensus mechanism similar to how a blockchain functions, and it is then sent to the smart contracts as the source of truth. It’s important to note that even decentralized oracles do not eliminate trust but distribute it between many participants.
In addition, it is important to note how a project chooses to implement decentralization into its oracle solution. Let’s take Chainlink for example, which presents itself as a decentralized oracle network. The network is following blockchain’s decentralization principles, but the projects choosing to use it can manually pick the network nodes they want to use. Given the fact that anyone can become a node, someone can simply choose to use only its own node as the oracle. If you don’t have bad intentions you can choose to trust all nodes, of course, in which case you expose yourself to a Sybil attack, or you can choose to trust only the nodes trusted by the ChanLink team through their KYC process (centralized reputation.) In any case, you’re putting your smart contracts at risk.
Vitalik Buterin himself shared his opinion about Chainlink on a Reddit comment: “I think Chainlink is cool and am happy that it exists, though its security model is too centralized for me to be satisfied with it being the solution to all oracle problems.”
Kylin Network is a truly decentralized oracle solution
The Kylin Network is an ambitious project that aims to solve the oracle problem once and for all with a cross-chain platform powered by Polkadot. An oracle is basically an API for smart contracts, feeding them external data. The platform of Kylin Network is offering an open API and SDK, for any project, including DeFi apps, to be able to access reliable and valid data.
Given how it implements the data within its ecosystem, the Kylin Network can be defined as more than just an oracle solution but a data provider. Within its platform, a first-of-its-kind data economy is being created from which applications, blockchain, parachains, and parathreads can pull data instantaneously. Kylin Oracle's fully decentralized solution can be a breakthrough in the decentralized data market.
You can imagine the Kylin Network as a system of fully independent oracles where it’s impossible for insiders or manipulators to influence on-chain data. Technically the solution wouldn’t be possible without the Polkadot/Substrate Framework on top of which the platform is built. The Polkadot usage not only bolsters validity and decentralization of the network’s data sources but it ensures a cost-effective way for data consumers (decentralized apps.) Any project that is currently using a centralized source can easily switch to Kylin to increase its decentralization while significantly lowering its functioning costs.
The team is already working with projects from the Polkadot network to help them integrate their solution. Their number of integrations is growing with the Polkadot ecosystem, achieving an increased number of connections on both sides: data feeding and consumption. They are choosing Polkadot because, unlike any other blockchain infrastructure, the shared security and reliability of its relay chain makes practical usage of oracle and validated data functionalities a real possibility. Most oracles are backed by simple and straightforward technology. That’s no different for Kylin, but the fact that it’s powered by Polkadot makes its solution more reliable and cost-effective than any other solution.
Also, the Polkadot ecosystem is evolving and Kylin is taking advantage of these improvements. The Polkadot team recently released an upgrade to Substrate that includes Off-Chain Workers (OCWs). With OCWs, anyone using the Polkadot network can easily use oracle services. In this scenario, Kylin can become a “one-stop shop” to validate the data before it reaches the project. From that, Kylin can extend into offering more features like analytics, arbitrators, and so on!
It’s not hard to believe that Kylin Network can become the oracle solution of our blockchain times. Kylin CEO, Dylan Dewdney made a great analogy with Google:
“Before Google, search queries were cumbersome, but anyone could do them. The same is true for oracles. It's not necessarily hard at a technical level to call an API now with Substrate 2.0 on Polkadot and their Off-Chain Workers. Anyway, Google was just able to introduce a better process by which to search, a scoring system that was in fact their first algo. The same basic algo has been revised over and over, but the process remains basically unchanged. . Google started strong because it built a system architecture that worked and worked very well. . Eventually, Google became the dominant search engine of the internet in the space of a few years.
In a similar way, Kylin can become the go-to oracle solution for blockchain. Blockchain oracles are currently in the same phase search engines were in 1999. Google built its solution on the infrastructure of the Internet, while Kylin is building its platform atop blockchain infrastructure.