The Oracle Problem - An Analysis of how Blockchain Oracles Undermine the Advantages of Decentralized Ledger Systems
59 Pages Posted: 18 Jun 2019
Date Written: December 12, 2017
Alongside with the publics' increased interest in cryptocurrencies and decentralized ledgers comes a considerable number of anticipated use cases for smart contracts. However, most of these are dependent on "real life" information that has to be transmitted to the blockchain beforehand so that the smart contracts can operate in response to it. This requires am Oracle, a trusted third party, to transmit the data onto the blockchain. This thesis encounters the lack of awareness for this issue with a structured analysis of the Oracle Problem. It will then demonstrate why the solutions for this issue proposed so far do not resolve, but in fact only relocate the necessity for trust onto an external third party and are therefore not sufficient in the context of many blockchain usecases.
This thesis was submitted to the Chair of Finance at EBS Business School on the 12th of December in 2017 in order to obtain the academic degree of "Masters of Arts" in Business Sciences. In the past, I have decided not to publish this original version, because I have been trying to update and rewrite it in order to make suitable for publishing in an academic journal. While I am still aiming to do this in the long-term, I had to drop this endeavor for the moment. However, as several people have inquired to read the thesis after giving a public interview about it, I decided to upload the preliminary version on SSRN.
Please keep in mind that the thesis has not been updated since the end of 2017 - some information may be outdated and some suggested solutions may not have been considered.
Keywords: Blockchain, Oracle, Smart Oracle, Blockchain Oracle, Third Party Data, Single Point of Failure, Security Architecture, Trustless Trust
Suggested Citation: Suggested Citation