The oracle problem in smart contracts: data privacy, security, and solutions

In the process of improving traceability and equipping supply chains with contract automation, smart contracts based on blockchains are being explored by the industry and even somewhat indicated by the EU legislator (see Data Act). But smart contracts in turn require data sources known as “oracles”. The oracle problem in smart contracts poses significant challenges to data privacy and security. This article explores the various risks associated with the oracle problem within supply chains and discusses potential solutions to enhance the security and privacy of smart contracts. The oracle problem encompasses data privacy risks, data manipulation risks, trust in oracle operators, data leakage, and regulatory compliance concerns. Among the solutions aimed at mitigating these risks are Privacy-preserving oracles, decentralised oracle networks, and reputation-based models which nonetheless are not foolproof, and each approach has its limitations. Hybrid approaches and cross-chain solutions are also discussed. The article emphasises the dynamic nature of the blockchain space and the importance of keeping up with the latest developments to address the oracle problem effectively.