What is an Oracle?

An oracle is a bridge between the blockchain and the real world. They act as on-chain APIs you can query to get information into your smart contracts. This could be anything from price information to weather reports. Oracles can also be bi-directional, used to "send" data out to the real world.

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While smart contracts are programs that run entirely autonomously, the first thing that they require is an input. It is this input that triggers a smart contract to be executed in the first place. A straight forward use case of a smart contract is betting against someone on whether the price of Bitcoin can go beyond $100,000 before the end of the year. These p[arameters then get deployed onto the blockchain.

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One the end of the year passes, money gets deposited or withdrawn from both parties accounts based on the outcomeof whether Bitcoins price goes over $100,000 by the end of the year. But how exactly is the price of Bitcoin retrieved and what is in charge of sending this price data to the smart contract?

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That is the job of an oracle, it extracts some data from the websites that keep track of Bitcoins prices and then sends it to a smart contract. No matter how secure the smart contract is, an oracle is still its weakest link. A smart contract cannot be completely decentralised until it can retrieve data using a decentralised mechanism thats resistant to any form of manipulation.