Are Oracles the Ticket to Ethereum’s Next Bull Market?

Ethereum’s recent string of positive performances has reinvigorated a long-standing debate in the crypto community: how will oracles influence adoption and prices?

Oracles: The Gateway to Data

There’s no denying that Ethereum has become the platform of choice for startups and smart contract developers looking to build a crypto-focused business. According to recent data, more than three-quarters of initial coin offerings (ICOs) were deployed using Ethereum’s smart contracts. Other platforms have caught the attention of developers but none have witnessed anywhere near the same adoption as Ethereum.

While blockchains are inherently self-sufficient, the executing logic in any given smart contract cannot do anything outside the blockchain. This means the blockchain cannot interact with existing web services. As Adam Gall aptly notes, “The only way to get data into a smart contract is to pass it in with the transaction. The only way to update blockchain state is to trigger that state change by sending a new transaction into the system.”

Given that some smart contracts may require inputs from real-world events, they need to have a way to communicate with data on the internet. That’s where oracles come into play. In principle, an oracle pattern links real world data that resides outside the blockchain to smart contracts that require data to determine which action to take.

Oracles essentially provide “trusted” data to a blockchain-based smart contract through transactions. In practical terms, oracles are usually web services with built-in functionalities specific to the blockchain. For example, an oracle may retrieve pricing information of a particular cryptocurrency from a website API.

Oracles are important because they can help boost adoption of Ethereum smart contracts. After all, smart contracts that can base decision-making on real-world parameters are more likely to find relevant use cases among consumers, businesses or any other target market. As adoption and utility of Ethereum smart contracts grow, so too does ether’s future price potential.

Cryptocurrency analyst Ian McLeod recently told Forbes that oracles will spearhead ether’s next bull run, which he says could materialize in the final two months of 2018. The analyst put a price target for ether at $500 by end-of-year. While McLeod’s outlook is overly optimistic given the issues currently plaguing Ethereum, not to mention the much wider market slump, oracles are likely to play an important role in the blockchain’s future.

ETH/USD Update

Ethereum has seen an impressive rally over the past seven days, with prices being fueled by a substantial upsurge in trading volume on virtual currency exchanges. Prices backtracked on Thursday, as coin values across the digital currency market faced overbought resistance following a short period of rapid gains.

Ether reached a low of around $213, down from a Wednesday high near $222. The second-largest cryptocurrency by market capitalization has returned a positive 8% over the past week. Ether trade volumes fell to $1.6 billion on Thursday after cracking $2 billion earlier in the week.

While analysts continue to speculate about ether’s long-term potential, short-term price action will be largely dictated by the broader market. Bitcoin cash and XRP have been the major market movers over the past week, which has fueled demand for alternative coins. The looming hard fork of bitcoin cash could have significant implications on the current rally and how investors allocate capital in the coming weeks.

That being said, ether’s recent uptick overcame several major barriers that had thwarted previous rally attempts. Gains above $200 followed by a short-lived rally north of $220 suggest that bullish momentum has returned.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi