What are decentralized apps dApps? Everything there is to know about decentralized applications


Decentralized applications, or DApps, are smart contract-powered blockchain-based versions of apps popularized by the Ethereum network.

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Decentralized applications, or DApps, are smart contract-powered blockchain-based versions of apps popularized by the Ethereum network. They behave similarly to traditional apps — a user should not notice a difference — but offer significantly more in terms of feature set.


DApps are a novel way to interact with personal finance. Traditional finance is frequently associated with money lending, borrowing, savings, and other similar entities. Each of these is fueled by a central authority, such as banks or other financial institutions.


However, when it comes to the future of finance, many people see cryptocurrencies and blockchain as examples. In that case, how do simple financial tasks like loans function in a decentralized state?


History of DApps


Although Bitcoin (BTC) was the first blockchain network, the technology has progressed far beyond a simple financial transaction. When Vitalik Buterin and his colleagues proposed Ethereum (ETH) in 2013, they had a much broader goal in mind: a decentralized way of life.


Buterin envisioned a blockchain-based internet in which users controlled the internet rather than corporations. To do so, Ethereum would power smart contracts, which are essentially automated if-then statements. Because rules and limitations were baked into their code, these contracts are unchangeable. This means that any party can transact without the need for a middleman, eliminating the need for centralized platforms.


Surprisingly, in 2014, a report defining the DApp, titled "The General Theory of Decentralized Applications, Dapps," was published. It was written by a group of experts in the field, including David Johnston and Shawn Wilkinson.


DApps were defined in the paper as entities with the following characteristics:

  • A DApp must be open-source and run without the intervention of a third party. It must be user-controlled, in the sense that users can propose and vote on changes that are then automatically implemented.
  • DApps must use a cryptographic token to gain access, and they must compensate contributors in the token, such as miners and stakers.
  • A consensus method that generates tokens, such as proof-of-work (PoW) or proof-of-stake (PoS), is required for a DApp (PoW).



The paper then divides DApps into three "types" or "layers" based on how users interact with them.


DApps at the first layer exist on their own blockchain. This type of DApp is used by the most popular projects, such as Bitcoin. They necessitate, for example, a consensus algorithm and built-in rules.


Layer-two DApps are typically built on top of layer one, leveraging the power of the underlying blockchain. Tokens are used for interactions in these protocols, which are frequently referred to as protocols. A layer-two DApp would be a scaling solution built on top of Ethereum. Transactions may be processed on this second layer before being committed to the first, relieving some of the load on the main chain.


Finally, layer-three DApps are built on top of layer two and frequently contain the information needed for the other two to interact. It may keep the application programming interfaces (APIs) and scripts required for layer one and layer two to function. A layer-three protocol, for example, could house multiple layer-two DApps, enhancing the user experience across the board.


Simply put, DApps are various applications that are powered by a core blockchain, according to the paper. Some may build on top of that initial layer, but they are all considered DApps if they meet the above criteria.


Why use a DApp?


Decentralization has several advantages over apps that run on a centralized network. The innovative smart contract eliminates the need for a third party. An app like Venmo allows you to send money to anyone, but transferring that money to a bank account costs money. Furthermore, moving fiat frequently takes days to arrive.


However, sending money through a decentralized app means there are no or very few fees to pay. Users save money on fees, and because decentralized transactions are almost instant, they save time as well.


DApps, of course, do not run on centralized servers. Because there is no physical device to target, decentralized platforms are immune to all types of attacks. This not only makes the network more secure, but it also eliminates downtime. It is always possible to gain access to these applications.


DApps can be used in almost any industry, including gaming, medicine, governance, and even file storage. As a result, DApp usage is nearly identical to that of traditional applications. While all of the changes on the backend benefit users, the actual experience should remain the same. This method of interacting with applications is referred to as Web 3.0, which also refers to the decentralization of information.


When the internet first began, it was a space full of information that anyone could access. Large corporations eventually harnessed, or centralized, it. While these organizations offer it "free," it comes at the expense of providing our data, which they then sell for a profit.


Companies have control over that information because they know what their customers like to buy, how much money they have, and who they know. That control also implies that they have the ability to revoke it. Enter Web 3.0, where DApp usage does not jeopardize privacy.


Instead, a user can share only the information needed for, say, a medical checkup or a loan, and control who sees it and for how long. Companies may also pay for this access, ensuring that users benefit as well. There is also the issue of trust. It's difficult to trust anyone completely in a world where large companies with ostensibly high security are leaking usernames, emails, and passwords.


Cons of DApps


While decentralized applications may present a future free of corporations, the industry is currently working to resolve some major issues.


For one thing, the lack of a centralized authority may result in slower updates and platform changes. After all, a single party can simply update their app whenever they want. A DApp, on the other hand, requires majority approval from the acting governance — even for minor bug fixes. This could take weeks or even months as users weigh the benefits and drawbacks of any changes.


DApps also require a sizable user base to function properly. To interact with it, they require nodes, governance, and users. However, accessing DApps can be difficult at this early stage, and many people aren't getting the help they require.


In the future, accessing a DApp may be as simple as a download. For the time being, users must download a DApp-compatible browser, send the required cryptocurrency to that wallet, and interact from there. While technically savvy users should have no trouble with this, the vast majority of people will be at a loss for where to begin.


DApps around the world


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


Finance


DApps can be used by both lenders and borrowers to conduct business. Lenders earn interest rates based on the amount of money they save at banks. The more a person saves, the more the bank can lend, and the more interest both parties earn. However, the bank, as a centralized entity, takes a larger cut than lenders would prefer simply for providing a place to store funds.


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


Borrowers have more say over the amount of interest paid as well as the time it takes to pay it. Indeed, some platforms allow borrowers to pay off interest over months or even years, provided they meet a minimum payment threshold. Rates can also be discussed with the borrower, ensuring a fair decision for both parties.


When all is said and done, thanks to smart contract technology, the proceeds can be realized immediately. There is no need to involve lawyers or other third parties, which prolongs the confirmation process and increases the cost to both parties.


Social media


Users stand to gain significantly from social media DApps. To begin with, there is no one to censor posts, which means free speech all around. If some posts become problematic, the community can vote to have them removed.


Influencers can also earn more money. The company profits the most from popular tweets on traditional platforms such as Twitter. It earns advertising revenue from all site visits, while the author receives, well, nothing monetarily speaking.


Social media DApps may have a built-in tipping system that uses the token, and users can run ads and earn their full payment without a company taking a cut.


Gaming


Gaming has always been an intriguing DApp application use case. Currently, games require dozens of hours invested in a character to grow — one in which the player has likely invested real money — only for it to sit and rot when the player moves on.


In terms of value, DApps present a more appealing solution. Take, for example, the game CryptoKitties. In this case, players obtain a tokenized asset, a cat. That cat will then mature over time, increasing in value if properly raised. A user can then sell that cat for whatever they want, assuming there is a willing buyer.


Furthermore, some cats may be able to breed with other cats, resulting in an even rarer and potentially more valuable cat. Players can trade or collect cats, as well as do whatever they want with these tokenized pets. Their time investment is now truly valuable. There aren't many of them right now, but imagine that idea in a more fleshed-out title with hours of gameplay. Full-time gaming could be in our near future.


Voting and governance


Voting is usually a painful experience. It frequently involves several validation steps, some of which are inaccessible to citizens without adequate housing or those suffering from other issues. Not to mention tampering and other illegal activities.


Because of smart contracts, a voting DApp can make the procedure accessible to all. In essence, the community can vote on a set of proposals. Then, for example, they can set a time limit of 24 hours for users to "stake" their vote with tokens. This broadens participation and allows anyone to vote anonymously.


Votes are immutable and untamperable because they are stored in a decentralized network. Furthermore, smart contracts can reward voters with a relevant token in exchange for their efforts, encouraging more people to vote than ever before.


Fundraising and advertising


While browsing the web, many people use an ad blocker. This is obviously a pain for websites trying to generate revenue, but it is understandable in some ways given how obnoxious ads have become in many ways. This can be fixed with a browser DApp.


Users browse the web while earning cryptocurrency using 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 browsing, the more they pay to that site over time. Users can even enable advertisements for those specific sites, which will benefit them even more in the long run.


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

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