An “oracle” sends data from the outside world, such as the daily temperature or the number of votes a political candidate received, to a blockchain such as Ethereum. A smart contract on the blockchain can then use the data, typically to make a decision about whether to dispense money and to whom. On Coindesk a example with Farmers was given: "Farmers sometimes purchase agricultural derivatives, which provide insurance in case drought wipes out her crops. If the weather doesn’t go the farmer’s way one season, the derivative will pay her a lump sum to make up for the losses." An Oracle could send weather data to a smart contract, for example rainy days. If the rainy days were under a specific number, which was defined in a smart contract, the farmer gets paid out. This is the same principle as derivates but fully automated.
In one sentence you could say: Oracles are the way to migrate off-chain data to on-chain smart contracts.
Oracle Problems and Charli3's solutions
Smart contracts are, once programmed, fully automated and controlled by the blockchain. There is no 3rd party involved who can manipulate it, isn't it? Blockchains like Cardano or Ethereum are made to get rid of third party entities, but oracles feed smart contracts with data from outside the Blockchain and are somehow third party.. This can be a enormous risk for the contract fed by Oracles data. The data can be manipulated or simply be faulty and so the smart contract is affected.
Most Oracles are built on Ethereum right now. This is because Ethereum was the first Blockchain with Smart Contracts to work with. But it's massive growth and use are somehow bad for Ethereum. The current Proof of Work model limits the speed of the Blockchain. Only ~15 transactions per second can be done, and high chain traffic results in very high gas fees. Cardano can solve these issues. It's Proof of Stake consensus gives the Cardano the abilities to be faster and less expensive than Ethereum.
"Charli3 is the first decentralized oracle network for the Cardano blockchain. By being native to Cardano, Charli3 aims to avoid the notable issues with flexibility, scaling, and growing transaction fees seen with Ethereum-based oracles while also building its foundation on a trusted network."
One way of Charli3 to reduce risks of wrong Oracle data is the aggressive node reputation. Charli3 node operators are required to stake $C3 to operate a node. Rewards are given to operators providing accurate data while wrong data cuts the staked amount of $C3. The strict consensus protocols will provide vetted data to users ensuring accurate data is transmitted.
Charli3 has new mechanics to secure Oracles data while, due to Cardano, providing no scale, speed and fee issues. This could give it enormous potential for the future of Cardano based DeFi.
Charli3's Whitepaper (new version coming soon)
if you have any questions, feel free to ask me, regards ntz
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