What are oracles in blockchain technology?

Oracles in blockchain technology serve as essential intermediaries that provide real-world data to smart contracts, thereby enabling these contracts to interact with external information sources. Smart contracts operate on blockchain networks and have the ability to execute automatically when predefined conditions are met. However, they are inherently limited to the data available on the blockchain itself. This is where oracles come into play.

By retrieving real-time data, such as market prices, weather information, or any external event results, oracles help trigger specific actions in smart contracts based on conditions that extend beyond the blockchain's closed environment. For instance, a smart contract in a decentralized finance (DeFi) platform might utilize an oracle to obtain and verify the current price of an asset in order to execute a trade or liquidate collateral.

The contributions of oracles are vital for the functionality of decentralized applications that require interaction with the real world, significantly expanding the utility and capabilities of blockchain technology.