If you think that cryptocurrency technology just involves digital coins that can be spent on the Internet, you’re wrong. The currency portion of cryptocurrency is just one part of a larger cryptosystem that involves things like blockchains to keep everything running.
A blockchain in crypto is a digital ledger that records transactions made with tokens. It doesn’t record personal details like who actually spent cryptocurrency, but it does record that the money was moved. The point of a blockchain is accountability and transparency. Since cryptocurrencies exist in digital form, solutions like blockchains are needed to prevent people from inventing coins out of thin air, thus keeping the crypto economy honest and healthy.
How Crypto Trades are Initiated
If you invest in cryptocurrencies, you’ll likely want to buy or sell investments at some point. This is normally done through an exchange on the web; however, there are different ways to enact transactions.
Some investors manually execute transactions based on things like the price of crypto changing. Others rely on smart contracts to enact transactions. Smart contracts are standing orders that automatically trigger a transaction to take place when certain conditions are met, but they only work based on information from the blockchain.
Executing Transactions Off the Blockchain
A blockchain oracle is a program that facilitates smart contract transactions off the blockchain. Essentially, a blockchain oracle can pull data from the real world to execute actions when conditions are right. This extends the functionality of blockchains by allowing traders and investors to have greater options for controlling when and where transactions take place.
Aside from convenience, oracles on a blockchain allow traders to keep track of how moves in the crypto market are influenced by real-world events. This is helpful for certain investments that peg the value of a coin to the value of a fiat currency like the U.S. dollar. If the dollar experiences a change in value due to some event that occurs around the world, a smart contract using an oracle can take action on behalf of an investor, meaning transactions happen automatically.
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