A concrete example
A lending application uses a price feed to value collateral.
In context
Chainlink provides oracle networks and services rather than a base chain equivalent to Bitcoin or Ethereum. Off-chain components gather and process information; contracts expose results on supported networks. The exact sources, operators and update rules depend on the service.
The related mechanism, visually
- 01External observation
- 02Collection and aggregation
- 03Oracle report
- 04Contract interpretation
Read these as connected concepts, not necessarily consecutive steps.
Read the explanation
A deterministic contract cannot simply fetch an arbitrary website during execution and expect every validator to receive the same answer. An oracle system makes external information available in a form contracts can consume. This introduces a chain of dependencies: original sources, collection, aggregation, delivery and interpretation by the application.
Put the mechanism into context
A crop-insurance contract uses rainfall from three sensors, all connected to the same weather service. Draw the apparent three-source design and its shared upstream dependency. Then identify what a service outage would affect.
Apply it in the workshop →What this mechanism does not guarantee
Many reporting nodes do not guarantee independent underlying sources. Several nodes can repeat the same bad exchange price. Define what the value means, when it was observed and what the contract should do when updates stop. Agreement about a reported number is not proof that the real-world event was measured correctly.
Explore the full explanation
Chainlink and the oracle problem
A lending contract needs collateral prices, but its blockchain does not natively know every market price.