What are Beacons? Why does Web3 care?

What are Beacons?

Web3 applications are built on smart contracts, which can only use data that’s already on the blockchain. They can’t just call Web APIs, which are off-chain, to access data like traditional applications do. Oracles are what we call the software or people that put real-world data on-chain so that smart contracts can use it.

Oracles are most often used to deliver data feeds to smart contracts. Data feeds are continuously updated variables available on-chain that represent the most recent value of some specific off-chain data such as the current price of Bitcoin in US Dollars.

Most oracles in use today are operated by third parties. These third-party oracle nodes call a Web API to get data from the source and then deliver it on-chain. First-party oracles are oracles that are owned and operated entirely by the API provider (the data source) and deliver data directly onto the blockchain without passing through a third party.

Beacons are a new kind of data feed powered by API3’s Airnode, the leading first-party oracle solution. Beacons come from a single, reputable API source rather than being aggregated from multiple data sources. They are lightweight, first-party data feeds that increase transparency, reduce cost, and increase data availability for Web3.

Beacons are risk-protected by the API3 DAO. If a decentralized application (dApp) suffers a loss due to a problem with a Beacon then the API3 DAO will cover it. Beacons are the first Web3 data feeds that explicitly cover users from losses due to malfunction, providing quantifiable security to dApps.

Why should I use Beacons?

Beacons are Transparent

As data feeds powered by first-party oracles, Beacons are inherently transparent. Smart contract developers always know with 100% certainty where the external data their application depends on comes from because they get it directly from the source. They can even see which API endpoint and parameters are used to get the data and verify that it’s exactly what they expect. This is not the case with oracles operated by third parties.

Third-party oracles are those operated by any entity other than the data provider itself. The majority of third-party oracles today are opaque. They hide the sources of data they use to create data feeds. Even the few third-party oracles that do reveal their data sources still do not provide the same level of confidence as first-party oracles because the data can be manipulated by the third parties. Third-party oracles increase the attack surface by introducing untrusted middlemen between the data source and the trustless blockchain that are vulnerable to attacks by both insiders (collusion) and outsiders (penetration), decreasing the data’s security.

An important benefit of first-party oracles being operated by the API providers themselves is that the real-world reputation of the data provider is carried on-chain along with the data. This is how we establish confidence in the real world — reputation. It’s the only realistic way for smart contracts to be confident in the accuracy and reliability of off-chain data.

Beacons are Efficient

Third-party oracles, in an effort to mitigate the risk introduced by the third parties, are typically “decentralized”. This means that multiple third-party oracle nodes run simultaneously and check each other to reduce the likelihood of one (or a few) of them cheating the system.

While this node-level decentralization does reduce the risk of third-party oracle nodes cheating, the redundancy comes at a cost. Each of these third-party oracle nodes requires work and incurs expenses to operate. The node operators expect to earn profit in return for their work and investment.

When oracles are operated by third parties, oracle-node decentralization is necessary to address the counterparty risk introduced by those third parties.

But what if there is no third party to introduce this additional risk? What if the API provider that owns the data itself is the oracle, and delivers their data directly on-chain for smart contracts to use? This direct-to-consumer approach requires fewer nodes to operate. It’s more efficient and reduces cost for the smart contract developer.

Beacons are Scalable

Saving money is desirable but it’s not the only thing that matters to smart contract developers. The cost of data feeds may not even be a concern for some dApps. The scalability of Beacons is often the factor that makes them the right choice for your application.

Beacons scale up very well. A single Airnode can deliver many first-party data feeds to many different blockchains without breaking a sweat. As a result, an API provider can easily serve Beacons at scale with little cost and almost no maintenance.

Beacons also scale down very well. One of the biggest problems faced by smart contract developers is needing data feeds that simply don’t exist. It is difficult and expensive for heavyweight third-party oracle networks to start up a new data feed. The cost of launching a new third-party oracle network to create a new data feed prevents many needed feeds from ever being created in the first place, leaving the dApps who need them hanging out to dry.

Lightweight Beacons, on the other hand, are trivial and inexpensive to start up. As a result, Beacons enable many dApps to exist that otherwise wouldn’t with only third-party oracles.

Beacons are Risk-Protected

A criticism of Beacons is that they are more centralized than third-party oracle networks. Beacons rely on a single API provider as the data source. While this is a legitimate concern, it’s an intentional tradeoff that brings with it numerous benefits such as transparency, efficiency, and scalability. If you do your research, you find that decentralized oracle networks aren’t as decentralized as you’re led to believe. But smart contracts relying on a single API for data may seem risky. That’s why API3 provides risk protection for Beacons.

All API3-powered Beacons are risk-protected by the API3 DAO. Beacons are the first Web3 data feeds that offer quantifiable security to smart contracts.

In addition to providing you with quantifiable security, Beacon risk protection aligns the interests of the API3 DAO with your own. You want reliable and accurate data feeds and API3 only wants to cover the risk for reliable, accurate and reputable data providers in order to avoid unnecessary claims. API3 is incentivized by both risk protection and transparency to only offer Beacons from top-quality, enterprise-grade data providers — which is in everyone’s best interest.

How do I use Beacons?

Using Beacons in your smart contract is trivial. If the Beacon you need already exists, simply read the docs to learn how. Visit API3.org and Request a Beacon to contact API3 and subscribe to the Beacons you need.

All Beacons are risk-protected by the API3 DAO. If your application experiences a loss and you believe it was due to a problem with Beacons then you can submit a claim. The DAO will accept the claim or send it to an unbiased arbitrator to be decided.

Beacons are expected to be initially available on Ethereum, Polygon, BNB Chain, and Arbitrum but they can easily be made available on other EVM-compatible smart contract platforms and many more are coming soon. As explained above, scalability is an important aspect of what sets Beacons apart from third-party oracle network data feeds.

Amberdata, a leading enterprise-grade crypto data provider, launched the first API3-powered Beacons on Ethereum and Polygon testnets at ETHDenver 2022. Any data needed by your smart contract that’s available from an Amberdata API can be used to create a Beacon. Data feeds from other API providers in the API3 Alliance will be made available soon.

Beacons are light-weight, first-party data feeds that increase transparency, reduce cost, and scale data access for Web3. Built on Airnode, the first-party oracle, Beacons democratize access to off-chain data in Web3 by making it accessible to all smart contracts, whether they’re big or small, old or new, mainstream or niche.

Request a Beacon and read the docs to get started. Visit API3.org to learn more. Join the API3 Discord to jump right in. 🥓

Author: Ryan Boder