“The blockchain technology has seen growth like no other technology due to the use case of cryptocurrencies that was made popular by Bitcoin. But, blockchain itself has very limited use cases and requires two important pieces of the puzzle to create an unimaginable future with extensive use cases. These two pieces are the Smart Contracts and Oracles.”
The Limitations of the Blockchain Technology
The blockchain is a peer-to-peer network that has a distributed ledger which makes it a decentralized entity. This decentralization mechanism along with immutable and irreversible recording of data makes it a highly secured network. A blockchain works in an encapsulated environment of its native chain and is unable to interact with other blockchains or with the other networks such as the internet. A blockchain can be compared to a computer without an internet connection. This limits the use cases of a blockchain considerably.
The two Pieces of the Puzzle: Smart Contracts and Oracles
These limitations hindered the growth of the blockchain technology until the two pieces in the puzzle were found and these are detailed below:
The smart contracts are one of the most talked about technologies in the crypto industry today and Ethereum was the first blockchain to introduce the smart contract capability. The smart contracts are a piece of code that can autonomously execute if certain conditions are met. The introduction of the smart contracts ignited the dawn of a revolution in the blockchain sphere with multiple use cases such as Decentralized Finance, insurance, Supply Chain automation, gaming etc. Smart contracts literally enhanced the capability of the blockchain to provide something more than creating native tokens and verifying transactions on the native chain.
Though smart contracts paved a path for multi-usage blockchain but their inability to interact with the external data or the off-chain data limited their scope and use cases. With the introduction of decentralized oracles along with smart contracts, the possibilities are unlimited and of the magnitude that can transform every industry it will touch. The decentralized oracles are the gateways that provide the smart contracts with the external data for execution that too in a decentralized and reliable manner. Chainlink is the largest decentralized oracle in the whole crypto industry and is revolutionizing the blockchain technology with its fast and reliable informational input to the smart contracts running on different blockchains.
- Blockchain in itself has a very limited number of use cases.
- Smart contracts provide an extra layer of functionality that widens the scope of blockchain technology use cases.
- Smart contracts alone cannot achieve much and thus oracles are required for inputting data feeds to the smart contracts for execution.
Disclaimer: The article is meant for the educational purpose only and in no way it should be considered as financial advice. Own research on the topic is advisable.
Photo by mimi9 on Pixabay