The problem facing decentralized oracles in Web 3.0 applications and their solutions  

In this post:

web 3.0

Web 3.0 (decentralized web) is here and the world is finally embracing the advantages of using the innovations. Blockchains are known for their distributed, tamper-free, and transparent features, but they are yet to be globally integrated given their limitations in connecting to the real (physical) world. While blockchains are growing as a preferable way to transfer value because of the factors mentioned, they still lack interoperability or native abilities to fetch or send data to external systems. 

As the industry scales across global industries and more developers adopt web 3.0, there is a great need for networks to communicate with the external world, to boost utility and efficiency. Additionally, this allows innovation to take precedence in the industry, for instance, the growth of the decentralized finance web 3.0 industry.

Blockchain oracles are the connecting channels by which physical data is transmitted to the blockchain. Oracles allow blockchain networks to fetch external data – like temperature, sporting events data, election data, or stock prices – from external APIs. For instance, DeFi platforms that have synthetic assets such as stocks, forex, etc., use blockchain oracles to fetch data from Bloomberg, NASDAQ, or Yahoo Finance and send it to the smart contract to determine the price of the synthetic asset. Simply, a blockchain oracle retrieves the information from the real world and delivers it onto a blockchain.

Chainlink has been the leading blockchain oracle provider since its launch in 2017. With over $56 billion in value secured through Chainlink oracles so far, the blockchain is the largest decentralized oracle provider in the ecosystem. Nonetheless, Chainlink has faced constant criticisms from top influencers in the crypto space, bemoaning the lack of complete decentralization of the oracle nodes, the collusion by nodes to feed wrong data, and most importantly, the lack of infrastructure to support commercial applications on the blockchain. 

Deficiencies of Web 2.0 and the impact of Web 3.0

Well, a Medium article, “What’s Wrong With the Chainlink 2.0 Whitepaper”, highlights the deficiencies the Chainlink oracle system has in its infrastructure, crypto-economics, and security. Not to despair though, since the field has welcomed other top oracle protocols that aim to solve the pertinent issues on Chainlink in a bid to inter-connect the blockchain ecosystem with the external world efficiently. 

First, Band Protocol, the closest challenger to Chainlink’s dominance, allows DApps’ smart contracts to communicate seamlessly via its oracles, similar to Chainlink. One major difference between the two is that Band Protocol is built on Cosmos blockchain, while Chainlink is built on Ethereum. Any mention of Ethereum raises the issue of high gas and transaction costs. Having moved from Ethereum to Cosmos, Band Protocol is able to keep costs down when sending or receiving data. In addition, Band’s Oracle communicates with its network nodes that live on-chain, which means that information can be seamlessly relayed and does not need two transactions to occur like Chainlink.

On the issue of attracting corporations and enterprises, Chainlink can be easily replaced by QED, an oracle solution that handles high levels of commercial risk. Launched in 2020, QED provides a decentralized oracle protocol with a robust economic model connecting multiple blockchains, smart contract platforms, and off-chain data sources. The platform deals with the problem of commercial availability by ensuring nodes underwrite external collateral to ensure they are efficient at all times. Additionally, the protocol uses economic incentives to optimize the transfer of external data through their oracles, which improves the health of the ecosystem and the value of the token, $QED, over time. 

QED avoids poorly performing Oracles by diverting fees to Oracles with high historical accuracy. Finally, the QED system token removes the aforementioned risk of collusion and makes sure that there is a decentralized unit of account for the system.  


As blockchain technology pushes its way towards global adoption and web 3.0 gains ground, the need for oracles becomes ever greater. Since its launch, Chainlink has been one of the best providers of blockchain oracle services, with a portion of DeFi’s explosive growth attributed to its launch. Nonetheless, the blockchain oracle has several problems that are hindering the efficient and fast-flowing exchange of information from external APIs to blockchain networks. 

The rise of oracle solutions such as Band Protocol and QED reduces the fees, gas costs, and latency issues that have previously been witnessed. Additionally, the use of economic incentives and robust economic models optimizes the transfer of external data across blockchain networks. 

Share link:

Most read

Loading Most Read articles...

Stay on top of crypto news, get daily updates in your inbox

Related News

Congressman Emmer: 'Ban CBDCs to Prevent Biden's Surveillance Agenda'
Subscribe to CryptoPolitan