- It has historically been difficult to connect blockchains with existing systems, slowing down adoption.
- Now blockchain oracles provide the necessary infrastructure to fill this gap.
- Here are key recommendations for implementing a new interoperability framework.
While blockchains have seen a surge of development in recent years, it has been unclear what the adoption curve will look like for global enterprises that want to capitalize on this technology without rebuilding their existing systems from scratch. With the rapid advance of blockchain oracles—infrastructure that securely connects blockchains to external systems—enterprises and governments now have a universal gateway for interacting with the fast-growing blockchain ecosystem.
The World Economic Forum, in collaboration with Chainlink, the industry-leading oracle solution, recently published a white paper, “Bridging the Governance Gap: Interoperability for Blockchain and Legacy Systems.” The paper outlines a holistic industry standard for global enterprises to adopt blockchain oracles that reduce switching costs and meet the security requirements for enterprise use cases.
Benefits of blockchains
Blockchains are a new infrastructure for securely validating and automating transactions across complex networks, with the potential to dramatically reduce the backend costs of modern financial systems and expedite the delivery of e-government services. They have four main benefits:
- Automation: Blockchain-based smart contracts automate business logic across multiple parties, reducing settlement time and costs.
- Security: Blockchains use advanced cryptography to guarantee tamper-proof data coordination and storage across large networks of counterparties.
- Reliability: A blockchain’s decentralized architecture prevents single points of failure and ensures the network is highly available.
- Transparency: A blockchain’s digital, immutable ledger provides auditability and accountability around business transactions and the origin of data.
Helping blockchains talk to existing systems
Blockchains, because of their unique, secure architecture, are not built to handle certain processes that run on existing systems. An interoperability bridge must therefore be implemented to enable smart contracts (on-chain) to fetch information from an existing system (off-chain), then format, validate and store it on a blockchain where it can be used to trigger smart contract-based digital agreements. An effective bridge can also feed on-chain information and commands to external systems for triggering events in the real world.
In simple terms, an effective interoperability framework must ensure that any existing system can talk to any blockchain environment. Currently, there is a wide array of different blockchain networks in development that offer different capabilities in terms of throughput, permissioning, consensus mechanisms, and more. Traditional enterprise system operators need an easy-to-integrate middle layer that can simultaneously access these various blockchains so they’re not limited to a single environment or certain types of data.
For example, Chainlink is a blockchain-agnostic oracle network, meaning it can support any blockchain environment. Chainlink’s generalizable network architecture enables the creation of any number of oracle networks that can operate natively on any blockchain. This highly flexible framework allows existing systems to connect to different chains through a universal gateway, significantly reducing the development costs of integration.
The importance of decentralization
The crucial function of blockchain oracles is to securely connect smart contracts to external data and systems so that they can trigger more dynamic and impactful real-world outcomes. The oracle mechanisms are not blockchains themselves and therefore must be engineered to provide the same data quality guarantees and security assumptions as the blockchain itself.
A decentralized oracle network is designed to ensure multiple layers of redundancy and decentralization from the data source level to the node level. This decentralized architecture guarantees that off-chain data that is fed to on-chain smart contracts is as tamper-proof as the underlying smart contract logic.
Encouraging blockchain adoption
Organizations are adopting decentralized oracle networks for a wide variety of smart contract applications around real-world datasets ranging from rainfall levels to e-sports results to financial market information to vehicle APIs.
Oracles are the critical layer that can bring universal connectivity to smart contracts, finally connecting the dots between existing systems, the expansive API economy, and the burgeoning blockchain ecosystem. For major players in global finance, global trade, the insurance industry, and government, a blockchain abstraction layer provides a gateway for quickly discovering the benefits of smart contracts with the security guarantees that large institutions need.
It is our hope that global enterprises are inspired by the paper’s framework to explore how they can now leverage blockchain networks to better serve their citizens, customers, and end users. We strongly believe these interoperability pathways remain a strategic choice for any enterprise determined to secure its infrastructure as we move into an increasingly uncertain future.