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Oracle Meaning

An entity or service that connects a blockchain to external systems, enabling smart contracts to execute based on real-world inputs. Blockchains are isolated networks; they cannot natively "see" the price of Apple stock or the weather in New York.

An Oracle bridges this gap. Chainlink is the most famous decentralized oracle network.

It aggregates data from multiple sources to provide a reliable price feed to DeFi protocols. For example, a lending protocol needs an oracle to know the current price of ETH to determine if a user's loan is under-collateralized and needs liquidation.

The "Oracle Problem" refers to the risk of relying on outside data. If the oracle is hacked or manipulated to report the wrong price, the smart contract will execute the wrong logic, potentially draining millions of dollars.

Decentralized oracles mitigate this by requiring consensus among many independent data providers.

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