# First-party oracles

An oracle is an agent that acts as an intermediary between a smart contract platform and an API. In other words, a decentralized application can use an oracle to call an API.

An oracle consists of two parts:

  • The oracle node that acts as a proxy, i.e., listens for requests made on the blockchain, calls the API over the Web, fulfills the requests by making transactions on the blockchain. Note that the oracle node is a traditional application that needs hosting.
  • The smart contracts that implement the protocol defining how decentralized applications can make requests to the oracle and receive responses. This part is deployed on-chain and runs trustlessly, i.e., no specific party needs to host it.

Based on this information, it looks like simply having an oracle solves the API connectivity problem. However, there is an important point to consider: Who will host the oracle node?

  1. If the API provider hosts the oracle node, the oracle is called a first-party oracle.
  2. If a third-party middleman hosts the oracle node, the oracle is called a third-party oracle.

Third party oracles are both insecure and expensive (see the API3 Whitepaper Issues with Third-Party Oracles as Middlemen for a detailed explanation). In contrast, first-party oracles are both secure and cost-efficient due to not having a middleman on the interface path.

Last Updated: 8/9/2022, 2:28:25 PM