Cryptoasset Anti-Financial Crime Specialist (CCAS) Certification Practice Test

Which of the following describes an “oracle” in the context of blockchain?

1. A mechanism that verifies on-chain transactions

2. A tool for generating random numbers

3. A third-party service that provides smart contracts with external information

4. A guideline for compliance in smart contracts

The correct answer is: A third-party service that provides smart contracts with external information

In the context of blockchain, an "oracle" is best described as a third-party service that provides smart contracts with external information. Oracles serve as intermediaries that help bridge the gap between the blockchain environment, which is often self-contained, and external data sources, which can include information about market prices, weather conditions, or any events occurring outside the blockchain ecosystem. This external data enables smart contracts to execute more complex functions that are reliant on real-world events and conditions. For example, a smart contract that triggers a payment based on the outcome of a sporting event would rely on an oracle to deliver the result of that event securely and accurately. While a mechanism that verifies on-chain transactions can be critical for maintaining the integrity of the blockchain, it does not encapsulate the broader functionality and purpose of oracles. Similarly, tools for generating random numbers and guidelines for compliance in smart contracts do not represent the role that oracles play in providing the necessary external information that smart contracts require to function effectively. Thus, the definition that identifies oracles as third-party services is the most accurate and relevant in this context.