Blockchain smart contracts can finally have a real world impact

You have probably heard that blockchain technology and “smart contracts” are going to revolutionize our lives.

But there’s a problem: before smart contracts can do anything really useful, they need a reliable way to connect with events in the real world—and that has proved impossible so far. This is the so-called “oracle problem,” a technological challenge that is still hampering any chance that blockchain will break out and become a part of our everyday lives.

Until now, perhaps. A startup called ChainLink is combining its software with a trusted hardware system called Town Crier, developed by a leading academic cryptocurrency research group. Together, they might be closer than ever to solving the problem.

Smart contracts are computer programs stored in a blockchain. They can be used to automate the unstoppable transfer of crypto-tokens between users, according to agreed-upon conditions. “Oracles” are real-time data feeds that deliver things like weather data, currency exchange rates, airline flight information, and sports statistics to smart contracts.

The idea is that by working together, the two systems can allow blockchain-based services to interact with real-world events with a greater degree trust than is possible from today’s oracle services. For example, if your flight is canceled but you bought flight insurance, a smart contract might instantaneously pay you after getting an update from a trusted source of flight times.

So what’s the problem? The oracle services introduced to date defeat the purpose of using a blockchain in the first place, says Chainlink’s CEO, Sergey Nazarov. In Ethereum, for example, all the participating nodes in the network compute every smart contract, making the programs virtually impossible to shut down. But today’s oracle services are too centralized, says Nazarov. They represent single points of failure that make targets for tampering.

That means smart contracts lack reliable access to real-world data. Without that, they are “like a city with no electricity,” says Ari Juels, a computer science professor at Cornell.