Jun 21, 2022 10 min read

What are Decentralized Apps (dApps)?

Summary:

dApps are apps that operate on a P2P (peer-to-peer) network using blockchain technology. Through the use of dApps, users’ data is able to be managed with mose security in comparison to centralized apps. In this article, we review: the types of dApps, how they compare to web apps, and how dApps are used in Fintech.

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With the rise of Blockchain technology, more and more people are asking about Decentralized Applications (dApps). But what are they, and what are they used for?

dApps are applications that run on a decentralized network. This means that there is no one central server or authority controlling them. Instead, they are powered by a network of computers worldwide.

This makes dApps incredibly secure and resistant to censorship. They can also be used to create trustless transactions without a third party. This makes them perfect for online voting, file sharing, and cryptocurrency wallets.

This guide will go through everything you need to know about dApps, including how to create your own.

What are dApps?

Decentralized applications are applications that run on a blockchain network. A blockchain network is a distributed database that allows for secure, transparent, and tamper-proof transactions between two or more parties.

Applications that run on a blockchain network are not controlled by any one party and instead rely on a consensus protocol to function. This makes them resistant to censorship and manipulation.

Additionally, decentralized applications often use tokens to reward users for participating in the network or providing resources.

Most Popular dApps in Cryptocurrency

Bomb Crypto (BSC) – 359k.
Trader Joe (AVALANCHE) – 375k
Uniswap (ETH) – 403k
Katana (RONIN) – 405k
Splinterlands (HIVE, WAX) – 663k
Axie Infinity (RONIN, ETH) – 829k
Alien Worlds (WAX, BSC) – 1.58M
PancakeSwap (BSC) – 4.72M

Types of DApps

Even though all DApps work similarly, we can divide them into three categories based on their specific use case and protocol layer. A protocol layer is similar to a tier on a wedding cake in that multiple layers (or tiers) can be stacked on top of each other.

Type 1

DApps have their blockchain network; Bitcoin is widely regarded as the first DApp.

Type 2

These DApps combine Type 1 DApps with a utility token required for them to function. The Omni Protocol, for example, is a distributed trading platform built on the Bitcoin blockchain.

Type 3

These DApps run on the same protocol as Type 2 DApps. The SAFE (Secure Access for Everyone) Network, for example, is a decentralized data storage and communications network that allows censorship-resistant websites and apps to be created. SafeCoins are issued by the SAFE Network using the Omni Protocol.

Drawing parallels to more familiar platforms may be helpful if DApp types are still unclear.

· Type 1: Your Mac's operating system, macOS Monterey.

· Type 2: On your Mac, use the Brave browser application.

· Type 3: The Honey add-on for the Brave browser application on your Mac.

While all DApps fall into one of three categories, each focuses on a specific use case or application. We've broken down some of the most popular DApps and their role in reimagining the online experience in the sections below.

What are DApps used for?

DApps can be used for various purposes, but their primary function is to decentralize applications. This means that DApps eliminates the need for a third party to control or manage the application.

Instead, DApps are powered by blockchain technology and use a distributed network of computers to keep track of transactions. Distributed ledger technologies like the Ethereum blockchain have helped popularize dApps.

This makes them more secure and reliable than traditional applications, and it also enables users to control their data.

Additionally, DApps can often be used to create decentralized markets and economies, eventually leading to a more democratic and equitable world economy.

What are Centralized Apps?

Centralized applications are those that are developed and managed by a single organization. Contrast this with decentralized applications, which are managed by a network of individual nodes.

Centralized applications offer several advantages to their users, chief among them being ease of use and reliability. Since only one organization is responsible for development and management, centralized applications are typically more user-friendly and stable than their decentralized counterparts.

On the other hand, decentralized applications offer users more control over their data and privacy. They also tend to be more resilient to outages and attacks, as there is no single point of failure. While they can be more challenging to use than centralized applications, their benefits make them worth the effort.

Web Apps vs. Decentralized Apps

Companies that provide web applications include Trello, Slack, and Twitter. The usability of traditional web applications is determined by two factors: the front and back end. Web applications rely on software that runs on centralized web servers rather than the device's local operating system.

The Hypertext Transfer Protocol allows devices and servers to communicate using coding messages (HTTP). When you open Twitter in your web browser, for example, the feed that appears (the front end) is derived from data stored on the company's web server (the back end).

While the internet transmits massive amounts of data via massive, centralized servers, a blockchain is made up of hundreds or even thousands of machines that share the transactional burden across a distributed network.

Decentralized apps and websites use the same technology to render a page on the internet on the front end. However, on the back end, dApps communicate with their respective blockchain networks via a wallet that acts as a gateway to the blockchain ecosystem.

Wallets keep track of your blockchain address as well as the cryptographic keys you'll need to identify and verify yourself. dApp wallets trigger smart contracts that interact with the blockchain and execute transactions, rather than using the HTTP protocol to communicate with it.

A decentralized application (dApp) is the front-end user interface (UI) that communicates with smart contracts that transact on the blockchain, after which the blockchain's distributed network of nodes validates and confirms the dApp data.

While the user experience (UX) of a well-designed decentralized application may appear similar to that of a web app, it differs in that it lacks servers, HTTP, and potential censorship.

Pros & Cons of DApps

Pros

Why were decentralized apps created in the first place? Concerns about big tech companies' control over our data, and the vulnerability of centralized systems are at the root of the answer.

When all of your data is stored in one location, it means that if that location goes down, so does the service and the information. When a data center is hacked, all data is collected in one location. If a government wants to censor a service, they only have to look in one place.

All of these issues are said to be mitigated or eliminated by dApps. The service cannot be shut down or corrupted because it lacks a central location. There's no way to hide back doors in the code of an open-source dApp.

Because dApps rely on the Ethereum blockchain to function, it's simple to incorporate cryptocurrency transactions into the app, allowing users to pay for services. Ethereum, like Bitcoin, is only pseudonymous because there are ways to link a crypto-wallet owner's identity to that wallet.

As a result, dApps have the same limitations as a centralized app that accepts cryptocurrency payments.

Decentralized apps can also use a "sidechain," which runs in parallel to the main blockchain but operates independently. A bridge connects the sidechain to the main blockchain. According to the official Ethereum sidechain document, deploying dApps to a sidechain is nearly as easy (or difficult) as deploying them to the main blockchain.

Cons

There are several reasons why dApps have yet to take off and may never achieve mainstream success. Traditional apps are driven by a strong business model, and companies that provide them develop them in a focused manner with a strong focus on usability.

dApps are often created by the community and lack the usability resources polished corporate apps have. Furthermore, if the dApp does not have enough users to keep it running, the user experience may be slow. It's a chicken-and-egg situation in which the dApp requires critical user mass to function properly, but no one will use it until it does.

Finally, because of the open-source nature of dApps, as well as the general principle of transparency, hackers have a unique opportunity to discover and exploit vulnerabilities that would otherwise be hidden.

DApps In Financial World

DApps in the financial sector may appear to be a no-brainer, but they can truly innovate across industries. Let's look at some of these advantages in fields like finance, social media, gaming, and more.

Finance

Moneylenders and borrowers can use DApps to conduct business. Lenders earn interest rates from banks based on the amount of money they save. The more money a person holds, the more money the bank can lend, and both parties earn more interest. However, because the bank acts as a centralized entity, it takes a larger cut than lenders would like simply for providing a storage facility.

Because there is no intermediary to pay, lenders earn 100% of their interest on a DApp. They also have more control over loans while earning tokens from the platform they choose to lend.

Borrowers have more control over the amount of interest they pay, and the time it takes to pay it. Indeed, some platforms allow borrowers to pay off interest over months or even years if they meet a minimum payment requirement. The borrower can also discuss rates with the lender, ensuring that both parties make an informed decision.

After all, is said and done, thanks to smart contract technology, the proceeds can be received immediately. There is no need to involve lawyers or other third parties, causing the confirmation process to take longer and cost both parties more money.

Social media DApps have a lot of potential for users. To begin with, there is no one to censor posts, implying that everyone is free to express themselves. However, if some posts become problematic, the community can vote to remove them.

Influencers can also make more money. The company makes the most money from popular tweets on traditional platforms like Twitter. From all of the site visits, it earns advertising revenue, while the author earns, well, nothing monetarily speaking.

Users can run ads and earn their full payments instead of a company taking a cut, and social media DApps may have a built-in tipping system using its token.

Gaming

Gaming has always been a fascinating use case for DApps. Currently, games require dozens of hours invested in a character's growth — time and money likely spent — only for the character to sit there and rot when the player moves on.

In terms of value, DApps are a more appealing option. Take, for example, the game CryptoKitties. A tokenized asset, in this case, a cat, is acquired by players. If properly raised, that cat will grow in value over time. The user can then sell the cat for whatever they want, assuming a willing buyer.

Furthermore, some cats may breed with other cats, resulting in an even rarer and potentially more valuable cat. Cats can be traded or collected, and players can do whatever they want with these tokenized pets. Their time investment is deemed to be truly valuable. There aren't many right now, but imagine that concept expanded into a full-fledged game with hours of gameplay. We might see full-time gaming in the future.

Governance and voting

Voting is, for the most part, a painful experience. It frequently entails several validation steps, some of which are inaccessible to citizens without adequate housing or dealing with other problems. Not to mention tampering and other illegal activities.

Thanks to smart contracts, a voting DApp can make the process accessible to everyone. The community, in essence, can vote on a list of proposals. Then they can set a time limit for users to "stake" their vote with tokens, such as 24 hours. This allows anyone to vote anonymously, allowing everyone to participate.

Votes are stored in a decentralized network, making them unchangeable and untameable. Furthermore, smart contracts can provide voters with a relevant token in exchange for their participation, encouraging more people to vote than ever before.

Fundraising and public relations

When browsing the internet, many people use an ad blocker. This is inconvenient for websites trying to make money, but it's understandable in some ways because advertisements have become obnoxious in many ways. This can be fixed with a browser DApp.

Users earn cryptocurrency while browsing the web with a browser-integrated ad and tracker blocker. Users can now choose to allow contributions when they find creators and websites they want to support. This means that the more time a user spends on a website, the more money they pay over time. Users can even enable advertisements for those specific websites, which will benefit them more in the long run.

The name of the game here is privacy. Users can control who can track them, protecting their personal information while still contributing to platforms in need of funds. It's a win-win situation for everyone.

The Future of Decentralized App

Although Bitcoin was arguably the first dApp, the Ethereum network has become the dApp ecosystem's primary growth driver. This is due to its smart contracts, network effect, and user base, among other factors.

As the decentralized finance (DeFi) market expands its use cases and adoption, dApps provide an essential on-ramp to new audiences by deploying user interfaces that mimic traditional web applications while gaining access to blockchain's new capabilities. In this way, dApps are using blockchain to expand the functionality of the internet in a variety of ways.

Regardless of the underlying blockchain in use, dApps are gaining traction quickly — and it's only the beginning. Finance, gaming, online markets, and social media are likely to become blockchain-based dApps as blockchain continues to develop rapidly.

Conclusion

In conclusion, dApps are a significant force in the blockchain space and will only become more popular in the future. They offer a variety of benefits, such as increased security, privacy, and accessibility.

Decentralized applications also have the following weaknesses: Maintenance, Hard to scale, Network congestion, & User experience.

dApps also can revolutionize several industries, including financial institutions, gaming, online markets, and social media.

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