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How Chainlink’s Solution To The Oracle Problem Could Create An Equitable World

Chainlink Co-Founder Sergey Nazarov recently joined technology entrepreneur and host of the Hidden Forces podcast, Demetri Kofinas, to discuss “Solving the Oracle Problem.” The conversation explored Nazarov’s views on the intersection of philosophy and technology, as well as how the latter might deliver what have so far been elusive humanitarian ideals.  

“I’m always interested in understanding the motivations of the people I speak with on Hidden Forces, particularly when they are in charge of a project or policy whose success or failure can have a huge impact on our lives,” Kofinas told Chainlink Today. 

“One of the most illuminating parts of my discussion with Sergey had to do with how he believes that cryptography and decentralization is about actualizing the liberal ideals that we claim to believe in as Westerners but that our public institutions have continuously failed to deliver. It’s a view you often hear expressed by people in this space, but listening to Sergey’s take was particularly profound, given his current role and the growing importance of Chainlink as the B2B service layer for much of crypto and DLT.”

“I think what it comes down to is I’ve always been fascinated by two things: technology and philosophy,” Nazarov told Kofinas when asked about his background. “From very early on, I was taking things apart, putting them back together – TVs, vacuum cleaners. And from a philosophy point of view, I always wanted to understand how the world works.” 

Nazarov said he realized early on that the world doesn’t actually work the way people are led to believe. In contrast to the censorship-resistant, tamper-proof guarantees of blockchain and smart contracts, the traditional financial industry is based on trust and brand reputation. 

“You have a nice piece of paper with your name on it. You have a big bank with marble columns. You feel very safe, but what do you really control? You really control nothing.” Nazarov noted that most people won’t care that this system is skewed to benefit some over others until they have a reason to care. “The unfortunate reality is that I think that reason is coming pretty quick.”

What exactly is the oracle problem?

“The oracle problem is really about getting data to deterministic decentralized blockchain infrastructures,” Nazarov explained. “What we want to achieve is a fair economic world for everybody. And when I say everybody, I mean every single person on the planet, regardless of if they’re born in an emerging market or a developed market, if they have a little money or a lot of money.”

Nazarov explained how smart contracts fueled by “definitive truth” sourced and verified by a decentralized oracle network play a large role in realizing a world where everyone can participate in global markets, acquire insurance and combat inflation. “While all of those things sound pretty obvious and basic, if you really dig into how the world works, there are huge asymmetries.” 

For example, farmers living in emerging markets often don’t have access to crop insurance because the burden of operating within certain geographies and legal systems is too risky for insurance companies. Parametric insurance policies encoded in smart contracts are already demonstrating the ability to change this. 

Nazarov painted a picture of a world where anyone with a $50 Android phone could designate their location and purchase an insurance plan to protect their livelihood from events beyond their control:

“Let’s say it doesn’t rain for two seasons and, all of a sudden, they get a payout on their phone and they can sustain their livelihood. Nobody had to wait for their local government to get it together. Nobody had to wait for an insurance company to come and offer this to them. The only thing that needed to exist was an internet connection, a smart contract that defined the conditions of the agreement and an oracle that proved whether there was rainfall.” 

How does anyone arrive at definitive truth?

“Definitive truth is the key building block in defining what happened and what a contract should do,” Nazarov said. In order for a group to arrive at definitive truth, they must define how many oracles they need, the data sources they consider to be sources of truth and how much agreement there needs to be among those data sources. “Once that level of agreement is achieved, they have de-risked the possibility that the truth was manipulated against them.” 

Just as independent miners come to consensus on blockchain, the function of oracle networks is to arrive at consensus about external events, which triggers the execution of smart contracts. 

“An oracle node connects to an API about market prices, weather or any other set of events and it verifies through that data source that something happened. With each additional node, each additional data source, you’re getting additional decentralization, additional proof, additional guarantees about the definitive truth of that specific value in that specific piece of information,” Nazarov explained.

Kofinas offered a simple analogy: 

“I’m envisioning this flower patch of flowers with petals. Each petal is a node. Some flowers have more petals than others, but there really is no limit to the number of flowers that you can have.”

“There’s an oracle network for each individual piece of definitive truth,” Nazarov agreed. “We’re now approaching hundreds of oracle networks. In the flower patch analogy, we’re probably going towards one of these endlessly large Netherlands greenhouses, where they just have a massive amount of flowers.”

Listen to Episode 186 of the Hidden Forces podcast below and support Hidden Forces on Patreon to unlock the overtime portion of the interview.

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