Oracle

What Is an Oracle?

More specifically, an oracle is an agent that communicates with outside data sources and also verifies that the data it provides is accurate. Oracles supply information to smart contracts, which then use it to carry out their programmed tasks. For example, a smart contract that settles a bet on a sports match needs the final score from outside the blockchain, and an oracle is what delivers it.

How Do Blockchain Oracles Work?

Smart contracts can only read data stored within their own network. An oracle solves this by translating real-world events, which are unpredictable and off-chain, into on-chain values that a smart contract can recognize and act on.

The Oracle Problem and Its Risks

Many oracles rely on a third-party data source that needs outside permission to function, so they are often run by centralized entities. Because smart contracts act on whatever an oracle reports, that oracle holds significant power over the outcome. This tension between trustless contracts and a trusted data feed is known as the Oracle Problem.

In September 2026, a manipulated price oracle cost the Nostra money market about 3.5 million USD. According to TRM Labs, there have been 32 price-manipulation exploits so far in 2026. 

Decentralized oracle networks, which gather data from many independent providers, are often proposed as a way to reduce single-point-of-failure risk. These can help, but building a secure, functional, and trustless oracle network remains a difficult engineering challenge.