A truly Decentralised Oracle Network needs to combine multiple independent oracle node operators and multiple reliable data sources.
Chainlink Price Feeds attempts to solve the issue of a single point of failure by ensuring decentralisation across the three layers of the oracle — the data source, node operator, and oracle network levels.
BTC/USD Oracle Example
One of the most puzzling things to newcomers to Bitcoin is where its price comes from? There is no single truth for its price, just a collection of independent marketplaces for buying and selling Bitcoin – cryptocurrency exchanges – each arriving at a price based on demand.
Sourcing accurate pricing is a problem for any service that wants to reference an exchange rate for trading between Bitcoin and US Dollars, the most popular trading pair. Which exchange should they reference for the price, and to what extent should/could they rely on that one source of information?
This is the service that an oracle, like Chainlink, provides. Chainlink will reference a minimum number of Nodes, each providing a BTC/USD price. The Nodes are paid for their service in LINK – the native token of the Chainlink ecosystem – but also have to stake LINK as a kind of bond which provides a financial incentive to submit accurate information.
The Chainlink system takes a median price across all the Nodes and feeds that to its clients. Inaccurate Nodes lose their stake and are replaced by alternatives.
Chainlink Price Feeds underpin billions of dollars of activity across diverse applications. Still, it is just one of many decentralised oracles, each taking a slightly different approach to solving the Oracle Problem.
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