Barriers To Blockchain Adoption and the Oracle Problem
Welcome to the Zenith Chain newsletter, a place for people who are interested in blockchain engineering, smart contract development, and the web 3.0.
Have you heard of the “Oracle Problem”? If not, you are not alone. In today’s newsletter, I’m going to briefly talk about the Oracle Problem, and how one of my favorite blockchain projects is tackling it head on.
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When it comes to blockchain technologies, there are a variety of technological barriers that need to be overcome before we see true, global adoption of cryptocurrencies and the surrounding blockchain technologies. One of the biggest problems right now is the scaling problem. Just look at the Ethereum blockchain, which is easily the largest and most popular smart contract development platform in the world.
Low Transaction Speeds
The Ethereum blockchain can only process around 15 transactions per second. And those 15 transactions a second are shared globally by anyone and anywhere in the world that wants to use the platform. If you compare this number to something like Visa or Mastercard which can process thousands of transactions per second, 15 transactions per second just simply isn’t going to cut it if Ethereum wants to scale.
Not only that, but every single transaction that takes place on Ethereum costs money in the form of the Ethereum token ETH, also known as gas. When the Ethereum network becomes congested due to a high amount of network usage, the transaction fees tend to skyrocket. This happened just weeks ago where if you wanted to do some sort of trade or transaction on Ethereum, it was going to cost you around $50. This of course is not sustainable for the average user.
Complexity/Low User Experience
Outside of the scaling issue, you have another major problem in that using blockchain technologies is just plain difficult for the average user. It requires a high degree of tech savviness, and you have to know how to manage your private keys, among many other things. For newcomers getting into the blockchain space, losing your private keys at least once is almost a rite of passage. It happens to the best of us, myself included.
I learned a hard lesson back in 2017 when I typed my private keys into a word doc for safekeeping so that I could store it on a USB stick. Little did I know, my computer was compromised by a malicious attacker, and my private keys were stolen, along with thousands of tokens that would have been worth millions today.
Despite the fact that my profession is in cybersecurity, I was STILL hacked do to one small oversight. Talk about a major ego blow. Stay tuned for a future article on that where I will be describing all of the hard earned lessons that came out of that one.
So as you can see, there are some major obstacles in the way of true global adoption by mainstream users and institutions. However, the most significant problem that I alluded to earlier called the Oracle Problem, was perhaps the biggest problem that blockchain has had to overcome. It has been a problem that has been thought unsolvable for decades.
The Oracle Problem
In order to understand the Oracle Problem, we have to take a few steps back here. The way blockchain technologies were designed was to be completely isolated from the outside world, aka the internet. At first this might come across as some sort of design flaw. Except it’s not. Isolating blockchains from the internet greatly increases security. This is especially true for smart contracts, which are contracts written into code that are self-executing, deterministic, and fully autonomous based off of some external event.
These external events could come from within the blockchain itself, but the capabilities of smart contracts truly shine when they can plug into any data source that exists outside of the blockchain. So if you are following my drift, there needs to be a way for that data that exists in the outside world to somehow be transferred onto the blockchain. There exists today what are called oracles that could fetch that data to the blockchain, except that they are single points of failure, and there is no way of knowing if that data is reliable, accurate, safe, or secure.
This is what the Oracle Problem is. When you have blockchain based self-executing smart contract that executes automatically based on some external data source out there in the wild, there has to be absolute guarantees that you can trust that data. This was a huge problem for blockchain, but fortunately, I believe this Oracle Problem has been solved.
If you haven’t figured out where I’m going with this, the blockchain technology that I’m referring to that has officially solved this problem is Chainlink.
Chainlink is a platform for creating decentralized oracle networks that create a tamper-proof, reliable, and secure two way bridge between the outside world and blockchain. Thought of in simpler terms, Chainlink is the internet connection to blockchains.
Through Chainlink’s decentralized oracle network, it is able to fetch data from any data source or premium data aggregator, combine that input with other oracles into a single source of truth, and then write that input to the blockchain in a secure, reliable, and tamper-proof way.
Chainlink came into the space back in late 2017, and has quickly risen to rockstar status within the blockchain community. Chainlink isn’t a blockchain at all. It is what’s known as a blockchain middleware, and they are absolutely unrivaled when it comes to blockchain oracle platforms. Without a decentralized oracle technology like Chainlink, it is my firm assumption that this entire blockchain and smart contract experiment will crash and burn. That’s how important this technology is.
If you want a deep dive on what Chainlink is and how it works, you can check out a recent article of mine on Hackernoon called “Is Chainlink the One Ring to Rule Them All?” In this article I talk about not only Chainlink’s fascinating technology, but also how I think it has the potential to be the greatest asymmetric risk/reward investment ever conceived. I go deep, and describe why I think Chainlink will be one of the major players that will help propel our world into the 4th Industrial Revolution.
I have a long running and probably somewhat unhealthy obsession with Chainlink, but if you take the time to dig into their technology, ecosystem, and partnerships, you probably will too. Chainlink has not only solved the Oracle Problem, they’ve blown past it. They even got tired of waiting for scaling solutions, so they simply built their own called Off-Chain-Reporting (OCR), and released it just last week. OCR increases the Chainlink network bandwidth by a factor of 10x! These guys are crushing it in every way.
I won’t be giving out too much investment advice on this newsletter going forward, but I tell almost everybody I know that wants to invest in cryptocurrency, that they absolutely need Chainlink in their portfolio.
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