Blockchain technology is revolutionizing the way we interact, process and share information, with many experts predicting it to be the most disruptive technology of the next decade. After few structural innovations since the 19th and 20th centuries, decentralization has brought sectors such as finance, media and technology closer to transparency, absence of middlemen and increased efficiency.
Traditional businesses rely on a centralized, closed-door structure. In contrast, decentralized financing projects are built with the philosophy that governance must be decentralized and democratic. Society’s transition to decentralized platforms can make many services more secure, accessible and transparent than ever before. The growing interest in space is testament to a collective desire to have more control over critical parts of our lives, especially our finances.
While decentralization helps solve issues like transparency and efficiency, the lack of a trusted central authority means decentralized applications, or DApps, have to rely on third parties to provide data to execute transactions. or application features such as taking out a loan. Access to reliable and reliable information such as price feeds, real world events and identification, among others, underpins the reliability, strength and efficiency of a decentralized application.
The security to protect this data comes from an Oracle solution capable of reliably and efficiently connecting real-world and off-chain information with decentralized applications and smart contracts in a verifiable and tamper-resistant manner. With over a million regular DApp users around the world, there is a huge demand for reliable data external to the blockchain as it underpins the security of DeFi applications and the billions currently locked in space.
Following hacks, attacks and manipulation of data, the challenge facing blockchain technology is to create trust and build secure systems in the absence of established companies or government regulations. This is where new technologies like data oracles are essential to create a secure link between traditional businesses with reliable price streams and the decentralized ecosystem.
Connecting the old and the new
Data oracles serve as a bridge between decentralized blockchain applications by aggregating and connecting real world data to smart contracts. These decentralized apps then use smart contracts that run automatically when certain criteria are met, such as collateralization, which requires a price oracle. In the absence of centralized authority, data oracles are essential for connecting blockchain-based applications to the information needed to execute these smart contracts.
The use cases for smart contracts and Oracle technology are vast and span insurance, real estate, healthcare, and most importantly, the DeFi space, where a security breach could put millions at stake.
In DeFi, there are many instances of hacks. Data oracles are the input to smart contract logic and therefore dictate their behavior: the output. If the data oracle entry is incorrect, it leads to unintended smart contract behavior and can lead to loss of funds or other unwanted outcomes, as seen in even the most powerful DeFi projects. These structural issues make widespread adoption of data oracles essential.
There is a desperate and critical need to connect Web 2.0 to Web 3.0, in order to create a more resilient, efficient and censorship-resistant Internet. Traditional businesses built on Web 2.0 are not yet structurally ready to transition to DeFi due to the learning curve, know-how, and organizational flexibility required. These traditional businesses will need seamless onboarding processes with a high level of flexibility and customization to act as a gateway to Web 3.0.
This is where new Oracle technology will come in, providing the support and systems to enable businesses to make the leap to Web 3.0 without the businesses themselves having to struggle with the process.
While DeFi has unmistakably exploded over the past year, the space still requires wider adoption by the majority, who have no coding expertise, as it is this accessibility that will create a truly robust DeFi ecosystem.
Traditional businesses 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 be captured in the market as the industry continues to grow.
Why we need to encourage traditional businesses to use blockchain
Many decentralized applications require real-time information such as price feeds, sports scores, weather, and news to function. Traditional businesses that can deliver reliable real-world data must take advantage of this growing demand by connecting to decentralized applications and marketing that data through a trusted data oracle. Tech and media giants like Google and Bloomberg, for example, would benefit tremendously from using a data oracle.
This is an exciting step for the industry, because when large companies dip their toes into DeFi, it adds additional security and legitimacy to the space. In turn, this transition will create an additional source of income for those companies established in a thriving new industry. Traditional businesses have no choice but to step into space or risk being left behind as the world continues to embrace DeFi, DApps and smart contracts.
Connecting directly to data sources is the best way for businesses to ensure the security and integrity of their data – which simultaneously boosts overall security in the DeFi space and throughout the decentralized ecosystem. Oracles play a very important role in this process and in building confidence in DeFi and the broader blockchain industry.
The future is decentralized
We are already seeing many large companies integrating decentralized technologies into their business models. It is up to the leaders of the DeFi space to engage and guide these traditional businesses so that there is significant change and evolution. It is imperative that the industry prioritizes usability, simplification, and community education to experience widespread adoption of DeFi. The future is decentralized and there is so much room for the industry to develop – we are only at the beginning of the revolution.
This article does not contain investment advice or recommendations. Every investment and trading move comes with risk, and readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed herein are the sole ones of the author and do not necessarily reflect or represent the views and opinions of TBEN.
Kevin lu is responsible for business development and growth at Band Protocol, a cross-chain data oracle platform supported by Sequoia. Previously, he was the creator and editor of Protocol Weekly / DeFi Weekly, a newsletter intended to present the progress of various Ethereum layer two protocols and decentralized financial projects.