What Is Decentralized Application (dApps)? Everything You Need To Know

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Larry Page

What is Decentralized Application (dApps)?

An open source software application that is distributed on a peer-to-peer (P2P) blockchain network rather than on a single computer is called decentralized application or dApp. The decentralized apps are smart contract-powered versions of apps popularized by and built on the Ethereum network. 

According to blockchain pioneer David Johnston’s book “The General Theory of Decentralized Applications, Dapps”, for an application to be considered a dApp it must meet the following criteria: 

1. The application must be completely open-source, it must operate autonomously, and with no entity controlling the majority of its tokens. The application may adapt its protocol in response to proposed improvements and market feedback but all changes must be decided by consensus of its users. 
2. The application must use a cryptographic token (bitcoin or a token native to its system) which is necessary for access to the application and any contribution of value from (miners/farmers) should be rewarded in the application’s tokens. 
3. The application must generate tokens according to a standard cryptographic algorithm acting as a proof of the value nodes are contributing to the application.  

How are Decentralized Applications different from software applications? 

A software application — also called an application program — is designed to handle specific tasks for users. Such software directs the computer to execute commands given by the user and may be said to include any program that processes data for a user. Some examples include payroll apps, spreadsheets, or word processors. 

Similarly, dApps use the same front-end code that is supported on a website or mobile device for a user. However, a dApp’s back-end code is different and will provide much more in terms of a feature set. Once a developer has released the dApps codebase, others can build on top of it without the control of a single authority as it runs on a decentralized P2P network. A dApp supports a variety of industry applications, including those for self-executing financial contracts, multi-user gaming, and social media platforms. 

Scope of DApps

Dapps represent a new way of managing personal finance. If you think about traditional finance, often financial tasks such as money lending, borrowing, and savings are all powered by a central authority such as banks or other financial institutions. 

However, how would financial tasks work in a decentralized world? Especially where many consider cryptocurrencies and the blockchain to be the future of finance? 

Dapps enable financial tasks to be performed in a decentralized environment. These dApps are supported by a blockchain-distributed ledger and run on a decentralized network. The dApp is used by the user to process data across remote networks and carry out financial operations.

DApps are used to 

• Facilitate secure, blockchain-based voting and governance. 
• Function as plugins integrated to web browsers that serve ads, track user behavior, and solicit crypto donations. 

Some industries that employ dApps are

• Financial services 
• Supply chain management 
• Identity verification 
• Real estate 
• Healthcare 
• Education 
• Social media 
• and Predictive markets

Advantages and Disadvantages of dApps

Pros:

• They have zero downtime, are always accessible to serve clients, and do not have a single point of failure for malicious actors to launch denial-of-service attacks. 
• DApps safeguard user privacy as there is no need to provide real-world identity. It uses smart-contracts to complete transactions between two anonymous parties without the need to rely on a central authority. 
• It is resistant to censorship because no single entity on the blockchain can delete messages, prevent transactions, deploy dApps, or read data. 
• DApps created on Ethereum, a flexible platform, provides developers with the infrastructure to find innovative uses for digital applications in a variety of industries. 
• They offer complete data integrity as hackers cannot forge transactions or other data that has already been made public on the blockchain. 

Cons:

• They are difficult to maintain as the already published code and data are harder to modify. Even if bugs or security issues are identified in the once deployed versions, it’s hard for developers to make updates. 
• Effective scaling is challenging due to performance overhead. Nodes run and store every transaction to get the level of security, integrity, transparency, and reliability.
• It is difficult for an average end-user to set up a tool stack necessary to securely interact with the blockchain. This will in turn be harder to engineer user-friendly experiences. Since dApps are fairly new, users aren’t seeing the support they need. 
• A lack of central authority will also mean slower updates and platform changes. Even for a minor bug fix, dApps will need a consensus of the acting government. This could take up to weeks or months while users debate the pros and cons of the fix. 
• Currently, dApps are not for those who aren’t tech savvy. It’s not a download away, users need dApp supported browsers, send the required crypto to that wallet and interact from there. 

Top 5 Most Popular dApps Available Now

1. UNISWAP

This US-based decentralized protocol was launched in November 2018 and enables users to swap and trade ERC-20 tokens. With more than 150k monthly users and $2.5 billion daily trading volume on average, it is at present one of the largest crypto exchanges on the internet. 

2. PANCAKE SWAP

Even though it uses Uniswap’s source code which is built on Ethereum blockchain, Pancake Swap is an Automated Market Maker which is part of Binance Smart Chain (BSC) network. On it you can trade BEP-20 tokens. It allows users to swap, stake, farm, and participate in contests, lottery, and offers many more such features. 

3. AAVE

This is an open-sourced liquidity protocol, providing complete transparency to the users. The users can lend, borrow, stake, and earn interest on digital asset deposits on this decentralized platform. The highlight of Aave is to carry out flash loans within a few seconds, participate in policy-making, and vote on important decisions using the native token. 

4. OPENSEA

The first NFT marketplace to gain mainstream attention, OpenSea was launched in December 2017. Initially developed on the Ethereum network, it was later integrated on the Polygon blockchain to minimize the transaction costs. Hosting more than 10K different NFT projects, it features some of the biggest brands in the NFT industry like Bored Ape Yacht Club, Crypto Punks, The Meebits, and more. 

5. RARIBLE

This NFT marketplace is developed on the Ethereum blockchain and can yet trade NFTs on multiple chains. It allows users to trade, mint, and list NFTs. Rarible includes various NFT genres such as photography, music, 3D illustrations, etc. The native token RARI enables participation in governing the platform and vote on future decisions. 

The Future of Decentralized Applications or dApps

Decentralization comes with distributing control or authority. It implies the distribution of authority or control over something, including a piece of information or any system of an organization. With decentralization this distribution is achieved without relying on a controlling authority, such as a centralized server, a central computer, big corporations or a government. 

DApps hold an immense level of potential to drastically change the way we work, communicate, commute and more. This also means it has the power to change the web, contributing towards the battle against internet censorship while providing increased trust in the system. DApps can work to reshape the business landscape through decentralization and make use of a peer-to-peer system. 

Involved in our day-to-day living, reducing costs and eliminating third parties from many of our personal and business transactions, these applications are expected to take automations and transaction security to the next level. Many enthusiasts in the field are expecting a steady growth and popularity of decentralized applications. 

Kleros Founder Federico Ast reassures that criticism of blockchain technology is only natural. He adds that any criticism about dApps is only temporary, and he is optimistic about dApps’ future. 

New technologies are usually received with skepticism. It’s easy to dismiss a new technology when you compare its very first iteration with the established versions of previous technologies.

Dapps offer so many benefits that some consider them to be the internet’s future. These benefits include distributed storage for increased security and redundancy, distributed computation for increased scalability and efficiency, and more.  

However, dApps are currently at the state of infancy and waiting to be evolved. Once it has reached its peak, how this power will be leveraged and what will happen is something only time can tell. Some even think that with the number of advantages that decentralized apps have to offer, they will most likely replace some centralized apps in the coming future.