What Is the Difference between a Centralized and a Decentralized Oracle?
A centralized oracle is a single entity responsible for sourcing and providing external data to a smart contract. This creates a single point of failure; if the entity is compromised, corrupted, or simply makes an error, the smart contract receives faulty data.
A decentralized oracle, such as a decentralized oracle network (DON), uses multiple independent nodes to retrieve data from various sources. These nodes' responses are aggregated to form a consensus value, making the data feed far more resistant to manipulation, censorship, and single points of failure.
Glossar
Oracle Network
Infrastructure ⎊ This refers to the decentralized network of nodes responsible for securely fetching, aggregating, and broadcasting external market data necessary for derivative pricing and settlement.
Decentralized Oracle Network
Network ⎊ A Decentralized Oracle Network (DON) facilitates secure and verifiable data feeds from external sources to blockchain environments, crucial for smart contract functionality within cryptocurrency derivatives and options trading.
Centralized Oracle
ExternalDataReliance ⎊ A Centralized Oracle represents a single, non-decentralized entity responsible for fetching, verifying, and reporting external market data, such as spot cryptocurrency prices, to on-chain smart contracts.
Decentralized Oracle
Attestation ⎊ Decentralized oracles fundamentally address the challenge of bridging off-chain data to on-chain smart contracts, providing a verifiable source of truth for derivative pricing and settlement.