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In blockchain and smart contract contexts, an oracle is a bridge that connects blockchains to external systems, enabling smart contracts to interact with and respond to external data and events. Oracles are crucial because smart contracts, by design, cannot access or verify real-world data on their own. They provide the necessary data to trigger smart contract executions based on real-world occurrences.

This data can include price information, weather conditions, or other off-chain facts. However, the reliability of a smart contract is heavily dependent on the trustworthiness of the oracle providing the data, leading to the “oracle problem,” where the integrity of the data source becomes a critical point of potential failure.