Auditing the Blockchain Oracle Problem

Abstract

ABSTRACT Blockchain brought about the potential for improved data reliability, but only when those data are the result of transactions that happen completely within a blockchain. The reliability of blockchain data is threatened when information is introduced from the outside world, such as when oracles are used to observe occurrences and provide this information to smart contracts. This specific threat to the reliability of blockchain data is known as the oracle problem. This study offers a working definition of blockchain oracles and argues that they should be viewed as service organizations under the auditing standards from the AICPA and PCAOB. The study then discusses risks associated with the oracle's function of collecting, storing, transforming, and transmitting information, and proposes control objectives for auditors to consider when evaluating the information provided by oracles. Finally, the study closes by discussing open questions the audit profession still needs to address with the oracle problem.