What is a dApp? Decentralized Application on the Blockchain.

21 Dec 2021

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What is a dApp? Decentralized Application on the Blockchain.

A decentralized application (dApp) is an application built on a decentralized network, such as a blockchain. A dApp is a service that provides direct interaction between providers and end-users through a blockchain or distributed ledger.

  • Article Quick Links:
  • How do dApps work?
  • Where are dApps used? Use cases in the real world.
  • The 5 benefits of dApp development
  • The 5 main challenges that dApps face
  • What are the best practices for dApps?
  • History of dApps
  • Future of dApps

A decentralized application combines the principles of a smart contract and a front-end user interface (what users see visually on their device). Today, most dApps are built on the Ethereum network (historically the first blockchain infrastructure that enabled smart contracts) where they can, for example, process data and execute transactions. Other common networks for dApps include EOS, Tron, and NEO. Meanwhile, new Ethereum alternatives are emerging on a regular basis with Solana, Polkadot, and Cardano gaining the most traction.

How do dApps work?

dApps resemble standard web applications in terms of user experience (UX) and differ in the back-end. Since no single server or company can control a decentralized application, they are peer-to-peer, meaning that two or more computers share access to data. dApps store and process data on a blockchain network with smart contracts, codes that execute a predetermined logic when the required conditions are met. This means that their code sits safely on multiple network nodes, and transactions get approved by peers.

Four criteria characterize dApps: 1) they are open-source; 2) the data must be stored on a decentralized blockchain; 3) they must create digital assets that act as proof of value; 4) those assets are distributed as rewards on the network to transaction validators.

Meanwhile, there are different types of dApps. “dApps are software programs that can run on their blockchain, use another already existing and established blockchain, or use only protocols of an existing blockchain solution. These are called Type [or Layer] I, II, and III dApps.” – Mastering Blockchain by Imran Bashir.

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Where are dApps used? Use cases in the real world.

By using dApps, blockchains like Ethereum, Stellar, and Cardano remove third parties from handling transactions between peers. As code replaces these parties, the expenditure of time and money is reduced. One of the best-known ‘genres’ of dApps are decentralized crypto exchanges (DEXs) like Uniswap, 1inch, Sushi, and Serum, which allow users to trade independently i.e. without having to trust a centralized exchange to hold their private keys. Instead, users retain ownership of their private keys and directly interact with the blockchain via the DEX interface. Let’s find out which other industries are being disrupted by dApps:

  • Decentralized arts and collectibles. A part of NFT’s.

Arts and collectibles have their dApps, which focus on digital ownership. Not only do they increase revenue potential for artists, but they invent new ways for fanatics to buy from and support their favorite creators. So, what is all the fuss about?

  1. Ownership is provable: As artists tokenize their art on the network, one can trace its journey from creation to the current holder.

  2. Collectibles follow you: An advantage for users and collectors is that collectibles are, in essence, portable: they go with them wherever they travel. Collectors can also sell items outside of the game itself. 

  3. Creators have control: Due to its decentralized nature, creators have direct control of their product’s revenue streams.

Some examples include:

  • Terra Virtua: An immersive platform to collect NFTs. They use gamification to engage users with new experience

  • Foundation: A network to foster mutual support between artists, creators, and collectors via crypto. It aims to create a new creative economy.

  • Audius: A streaming platform for all sorts of musicians, from independent to professionals. It allows them to monetize their work and grow without needing a record deal.

  • Decentralized finance and banking

Decentralized finance applications provide services using cryptocurrencies. The dApps offer borrowing, lending, interest-bearing savings accounts, and more with the advantage of cutting out the middleman, so users can regain control of their finances. Four points make dApps in this industry very interesting:

  1. Open access: As an example, on Ethereum, no sign-up is required. The only thing you need to do is have funds and an internet connection.

  2. Stablecoins: Stablecoins were created to lower the risk and uncertainty of cryptocurrencies. They are a less volatile solution for investors keen to participate in the crypto sector.

  3. A new token economy: All these upcoming financial products allow you to interact with a whole new world of tokens.

  4. Take the full cut: Lenders earn close to 100% of their interest as there is no intermediary to pay.

Some examples include:

  • Aave: Is an open-source and non-custodial liquidity protocol for earning interest on deposits and borrowing assets. A non-custodial exchange does not hold your money, you are therefore 100% in control of your assets.

  • Uniswap: Is a decentralized crypto exchange making use of a new type of trading model, automated liquidity protocol. This exchange runs on the Ethereum blockchain.

  • Token Sets: Token Sets allow you to use automated asset management strategies that calculate when to buy and sell crypto. It allows you to piggyback or copy traders. If they win, you win. Also, Robo Sets are available, which let algorithms decide what to do.

  • Polymarket: Polymarket is an information markets platform that lets people trade on the world’s most highly-debated topics. You can build a portfolio based on your forecasts and earn a return if you are correct.

  • Decentralized Gaming, the future of gaming.

Decentralized gaming aims to create virtual worlds with real-world value.

  1. Game items double as tokens: All items you collect in games, such as virtual land, characters or trading cards, have real-world value. As they are tokens, you can trade or sell them for a monetary value.

  2. Provable fairness: dApps have the unique characteristic that everything (in theory) is verifiable as it sits on a blockchain.

  3. Your saves are safe: As dApps are decentralized, your items and progress will not become lost if a company behind a game is hacked. You own your items and progress.

Some examples are:

  • Cryptovoxels: A virtual world and metaverse where players can buy land to build stores and galleries.

  • Axie Infinity: An immersive universe where you use creatures to play different games. The platform rewards players for their engagement.

  • Decentralized social media

Decentralized social networks are becoming a trend. These are social media platforms built on the blockchain. Two of the main advantages are censorship resistance and personal data ownership, giving people the power to decide what to share with other institutions/people. Even Facebook is exploring the possibilities offered by this type of social media, with Mark Zuckerberg referring to it as the “Metaverse” or the next generation of the internet.

Some examples are:

  • Steemit: Steemit works similarly to Reddit. The platform uses a token, STEEM, to reward users who publish or interact with others. Engagements are recorded on the blockchain via Steemit’s smart contract.

  • Minds: Minds can be viewed as an alternative to Facebook. The two million users can monetize content and benefit from peer-to-peer advertising.

The 5 benefits of dApp development

dApps have several significant advantages. Here are some of the main ones:

  1. Censorship proof: No entity on the network has the power or authority to block a user from deploying dApps, reading data, or submitting transactions.

  2. Security and resilience: Malicious actors cannot launch denial-of-service (DoS) attacks targeted towards individual dApps. The moment a smart contract (the heart of a dApp) gets deployed on the blockchain, the network will serve users trying to interact with the contract in any situation. Simply put, dApps continue to work if individual computers or parts of the network go down.

  3. Privacy: It may be unusual for an app, but you do not need a real-world identity to interact with a dApp.

  4. Complete data integrity: Immutability and indisputability of stored data are at the core of cryptography and, thus, blockchain. As such, malicious actors cannot forge transactions or other data that is already public.

  5. Trustless computation/verifiable behavior: Smart contracts do not need central entities to analyze and guarantee their execution. It is contrary to the traditional centralized system, where we trust institutions to not misuse our financial data, get hacked, etc.

The 5 main challenges that dApps face

While dApps aim to solve many problems, their implementation is not simple. Ethereum lists the following reasons why:

  1. Maintenance: Once the code of a dApp is on the blockchain, it is very difficult to edit. If there are bugs or security risks, developers will not be able to correct them quickly.

  2. Performance overhead: dApps are resource-intensive. Above proof-of-work, all nodes run and store each transaction to gain reliability, transparency, and security.

  3. Network Congestion: It is common for a blockchain network to become congested if a dApp overuses resources. If the dApp causes the nodes to carry more data than they can handle, it can result in delays or blocking new connections.

  4. UX: Setting up a tool stack for end-users to securely interact with the blockchain is not simple. As most of them are not very tech-savvy, developers may struggle to create user-friendly dApps.

  5. Centralization: Blockchain’s promise is to give freedom to developers and users with its decentralization. However, dApps that simplify actions for users and developers can end up looking like they are centralized. The way the data gets stored and processed may copy each other, limiting many freedom advantages of traditional blockchains.

What are the best practices for dApps?

To know if the dApp you are using really adheres to the ethos of decentralization and privacy, it should implement the following best practices as laid out by Eat the Blocks:

  1. Not ask for your private keys

  2. Not sign transactions for you

  3. Be open source

  4. Run security tools in the smart contract

  5. Use Ethereum addresses to identify users

  6. Explain how the smart contract updates

  7. Explain how external data gets collected

  8. Show transaction feedback to users while it is mining

History of dApps

To better understand the history of dApps, it’s useful to have a closer look at the history of the internet.

Let’s start with Web 1.0 (1989-2005). In 1989, Tim Berners-Lee, a computer scientist working at CERN,  invented the World Wide Web, better known as WWW. This type of web did not have algorithms to sift through internet pages, giving rise to the term Static Web. 

Web 2.0 (2005-present) was characterized by the evolution of social media websites. It was publisher Tim O’Reilly who devoted a five-page blog post to explaining what was meant by Web 2.0. This evolution made the internet much more interactive and led to the popularization of centralized platforms like YouTube, Facebook, Twitter, etc. 

Web 3.0 continues this evolution. It is expected that this version of the web will provide a more personal browsing experience and will help establish a more equitable internet. It is in this version of the web that dApps will become mainstream, as Web 3.0 will operate through decentralized protocols, which are based on blockchain technology.

Future of dApps

More and more dApps are being created and adopted every day, bringing benefits to real-life situations. This growth reduces costs and eliminates third parties from transactions between people and organizations.

As mentioned above, an industry that is rapidly growing is decentralized finance (DeFi). Many projects are somewhat familiar to users because they mimic well-known web applications, yet they are based on blockchain technology. Many of the dApps currently emerging build on the functionality of the internet.

We can expect this trend to continue as dApps fulfil the expectations and ambitions of many stakeholders. Soon enough, many other industries will follow suit, and all sorts of internet users will engage with them.

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