Oracles: How Is Information Quality Ensured?

Smart contracts rely on data from oracles but, are oracles always reliable?

The oracle problem

One of the things that has been made clear with the proliferation of blockchain-based solutions, especially in the decentralized insurance space, is that smart contracts are powerful tools.

However, in order for smart contracts to work, they have to receive data, which often comes from external sources called oracles. This means smart contracts may be manipulated if the oracles they rely on have been compromised.

Adan Sanchez de Pedro of Witnet Foundation highlighted this problem during his presentation at the Decentralized Insurance Developer Conference (D1Conf) hosted by Etherisc in Prague.

Adan Sanchez de Pedro at D1Conf

“Without decentralized data brokerage, we cannot have smart contracts that make sense, are truly decentralized, and solve real problems in the right way.”— Adan Sanchez de Pedro, Witnet Foundation

What’s being done about it?

A panel of blockchain experts, moderated by Ron Bernstein of Coinbase, further discussed the issue with oracles. The panel included Jack Peterson of Augur, Thomas Bertani of Oraclize, Doug von Kohorn of Rhombus, Sergey Nazarov of Chainlink, Julien Bouteloup of Flyingcarpet, and Adan.

The debate made clear that there is no single de facto solution to the problem and every organization has different approaches for ensuring the quality of oracles.

At Etherisc, ensuring the data quality from oracles is one of the utility functions of staking the DIP token. In parametric insurance, oracles act as gateways to the physical world, providing provable and reliable ways to transfer data to smart contracts, and they are rewarded by the ecosystem with transactions fees for their service. Data quality plays a crucial role for parametric insurance applications.

As other users earn fees, oracles working with Etherisc will have to stake DIP tokens as an economic incentive to provide high quality data. The decentralized system is designed to effectively disintermediate trust between participants and prime an optimal behaviour within the network. You can read more about the Oracles role in our Whitepaper.

In Augur’s case, individual users act as the oracles.

“Augur’s users act as an oracle, and they pull information from whatever source the person that created the market specifies. In that respect, Augur melds quite naturally with other oracle providers.” — Jack Peterson, Augur

Rhombus uses a personal approach where they work directly with customers to create an oracle.

“We do two things. One is we try to find the best sources for a given signal that a customer is looking for. In the case of weather, there are a lot of amateurs that put sensors out around the world reporting data, and there are also professional weather services. The other thing we support is clarity in judgment. We’re OK with whatever business context the customer develops, as long as it’s a transparent computation that you can prove to anybody.”— Doug von Kohorn, Rhombus

Jack Peterson (Augur), Thomas Bertani (Oraclize), Doug von Kohorn (Rhombus), Sergey Nazarov (Chainlink), Julien Bouteloup (Flyingcarpet), and Adan Sanchez de Pedro (Witnet Foundation)

Both Chainlink and Witnet Foundation emphasize flexibility by enabling their users to pick and choose how many oracles they want.

“We give people the choice to buy more security by purchasing more independent node operators. It’s not our place to tell people you need one, five, or ten nodes. It’s our place to provide a system that allows people to purchase the decentralization and the reliable verification of input to the degree that they want to pay for this.”— Sergey Nazarov, Chainlink

Adan echoed Sergey’s remarks and added further conditions that Witnet Foundation users can set.

“We allow smart contract developers to choose as many sources as they want. They need to specify how data will be retrieved, normalized, and aggregated. It’s up to the smart contract developers to understand their needs and tradeoffs.”— Adan Sanchez de Pedro, Witnet Foundation

While there is no simple answer to ensuring the quality of oracles yet, the prevailing idea from the panel is that any standard that emerges would have to incorporate existing data providers to maintain decentralization and reliability.

Want details? Watch the videos!

Adan Sanchez de Pedro of Witnet Foundation talks about how oracles affect smart contracts.