Blockchain technology is revolutionizing the way we interact with information, conduct transactions, and share information. Many experts predict that this will be the most disruptive technology in the next decade. After minor structural innovations since the 19th and 20th centuries, decentralization has brought industries such as finance, media and technology closer to transparency, freedom of intermediaries and increased efficiency.
Traditional companies rely on a centralized structure with closed doors. In contrast, decentralized finance projects are built with the ethos that governance should be decentralized and democratic. The transition of society to decentralized platforms can make many services more secure, accessible and transparent than ever before. The growing interest in space speaks for the collective desire for more control over critical elements of our lives, especially our finances.
While decentralization helps solve problems like transparency and efficiency, the lack of a trustworthy central authority means that decentralized applications or DApps rely on third parties to provide data for the execution of transactions or application functions such as taking out a loan. Access to reliable, trustworthy information such as price feeds, real events and identification underpins, among other things, the reliability, strength and efficiency of a decentralized application.
The security to protect this data relies on an Oracle solution that is able to reliably and effectively combine real and off-chain information with decentralized applications and intelligent contracts in a verifiable, tamper-proof manner. With more than 1 million regular users of DApps worldwide, there is a huge demand for reliable data off the blockchain as it underpins the security of DeFi applications and the billions currently in storage.
After hacks, attacks and data manipulation, the challenge for blockchain technology is to create trust and build secure systems when there are no established companies or government regulations. New technologies such as data oracles are essential here to establish a secure connection between traditional companies with reliable price feeds and the decentralized ecosystem.
Combine old and new
Data oracles act as a bridge between decentralized blockchain applications by aggregating real data and connecting it to intelligent contracts. These decentralized applications then use smart contracts that execute themselves when certain criteria are met, e.g. B. the liquidation of collateral for which a price oracle is required. In the absence of a central authority, data oracles are essential to connect blockchain-based applications to the information needed to run these smart contracts.
The use cases for smart contracts and oracle technology are extensive, spanning insurance, real estate, healthcare and, most importantly, the DeFi space, where a security breach could put millions at risk.
There are numerous cases of hacks in DeFi. Data oracles are the input into the logic of smart contracts and therefore determine their behavior: the output. If the data oracle input is incorrect, it will lead to unintended behavior of the smart contract and can lead to lost money or other undesirable outcomes, such as is the case with even the strongest DeFi projects. These structural problems make a broad acceptance of data oracles essential.
There is an urgent need to combine Web 2.0 with Web 3.0 in order to create a more resilient, more efficient and censorship-resistant Internet. Traditional companies based on Web 2.0 are structurally not yet ready to switch to DeFi due to the required learning curve, the required know-how and the required organizational flexibility. These traditional companies need seamless onboarding processes with a high degree of flexibility and customizability to act as a bridge to Web 3.0.
This is where the new oracle technology comes into play, offering companies the support and systems to make the leap into Web 3.0 without the companies having to deal with the process themselves.
While DeFi was undeniably booming over the past year, the space still requires broader acceptance by the majority who have no programming skills, as that accessibility will create a really robust DeFi ecosystem.
Traditional companies will also benefit greatly from this transition, as their data is a valuable resource for decentralized applications and an innovative new revenue stream ready to conquer the market as the industry continues to grow.
Why we need to motivate traditional companies for the blockchain
Many decentralized applications require real-time information such as prize feeds, sports scores, weather and news updates to function. Traditional companies that can deliver reliable data from the real world need to capitalize on this growing demand by connecting to decentralized applications and commercializing that data through a reliable data oracle. Tech and media giants like Google and Bloomberg, for example, would benefit hugely from using a data oracle.
This is an exciting move for the industry because when big companies stick their toes in DeFi it increases the security and legitimacy of the space. This transition, in turn, will create an additional source of income for these established companies in a new, thriving industry. Traditional businesses have no choice but to step into the room or take the risk of being left behind as the world continues to adopt DeFi, DApps, and smart contracts.
Connecting directly to data sources is the best way for companies to ensure the security and integrity of their data. This simultaneously strengthens the overall security in the DeFi area and in the entire decentralized ecosystem. Oracles play a very important role in this process and in building trust in the DeFi and wider blockchain industry.
The future is decentralized
We are already seeing many large companies that integrate decentralized technologies into their business models. It is up to the DeFi executives to involve and manage these traditional companies so that there are significant changes and developments. It is imperative that the industry prioritize ease of use, simplification, and educating the community to experience the widespread adoption that DeFi is targeting. The future is decentralized and there is so much room for the industry to grow – we are only at the beginning of the revolution.
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Kevin Lu is the director of business development and growth for Band Protocol, a Sequoia-supported cross-chain data oracle platform. He was previously the creator and writer of Protocol Weekly / DeFi Weekly, a newsletter that featured the progress of various Ethereum Layer Two protocols and decentralized finance projects.