What is a Decentralized Application (DApp)?
Blockchain is best known for being the technology that cryptocurrencies such as Bitcoin and Ethereum are built upon. It is however also responsible for many more concepts that drive the vast crypto market we have today. Among the many use cases of blockchain technology that have surfaced in recent years are Decentralized Applications, blockchain-based applications that represent the next logical evolution of our current applications and online services which are set to redefine how our data is used and how we can make and exchange money online.
What is a Decentralized Application (DApp)?
A decentralized blockchain application or “DApp” is a computer program that exists and runs on the blockchain. By design, dApps are not controlled by any individual or group because they are tied to blockchain networks like Ethereum, and a copy of the data is stored on all computers on a blockchain network.
In simpler terms, a dApp is the result of the integration of smart contracts, a cryptocurrency, a blockchain network, and an application.
The launch of Ethereum in 2015 and the popularization of initial coin offerings (ICOs) paved the way for the development of decentralized applications that have become a major component of the blockchain industry. The Ethereum network is currently the most popular blockchain where most dApps are developed and these dApps can be built for various purposes, such as social media, finance, governance, file storage gaming, and many more.
How Does a Decentralized Application (DApp) Work?
At the core of any web application is two components: a frontend (as seen on a computer) and a backend (on the respective servers). A decentralized app is very similar in its functionality and basic structure to the traditional apps that we are familiar with, with a few key differences. Firstly, the backend component and infrastructure of a dApp resides on the blockchain, which means that the application can be viewed by all users transparently. DApps work differently in how they incentivize their users and how they store data, which typically involves the use of decentralized blocks to provide decentralized storage.
Another key aspect of dApps is that they are built to be open-sourced and decentralized and as such support peer-to-peer systems and transactions. It also means that every change made is first decided by a consensus of a major number of users. Unlike traditional applications that require the support of centralized servers and databases, dApps are supported by automated and self-executing smart contracts that run on a blockchain, a ledger of data records stored in blocks. These blocks of data are spread across distributed locations and require cryptographic validations to verify and link these data blocks.
Lastly, dApps are also overseen and funded by their users, as is the case with networks such as Ethereum and Bitcoin. This further prevents the control from being completely given to a single authority and instead has each stakeholder involved in the decisions.
Advantages and Disadvantages of DApps
Decentralized applications are still regarded as being in their earlier stages, with many known attributes that contribute to their merits and others that make them experimental and prone to certain problems and unknowns.
Protects user privacy: With decentralized applications, blockchain users do not need to disclose their personal information in order to access the features and capabilities of the network’s dApps.
Use of smart contracts: dApps use self-executing contracts to conduct transactions between two anonymous participants without relying on a central authority. Instead, use consensus mechanisms, and each transaction is confirmed by the entire network.
More dependable and minimizes data loss: Because dApps use blockchain networks with several nodes, they are more dependable than traditional apps. This means that the chances of the dApps crashing and causing data loss and access loss are extremely low.
Transparent and decentralized: Because dApps are decentralized, every network participant must have access to the source code. As a result, fraudulent behaviors and exploitative viruses are less likely to interfere with the dApp. This also means that each stakeholder has the opportunity to validate the programs developed.
Scalability problems: there are still questions about networks’ ability to support a high number of users and resources. The surge of decentralized applications might produce network congestion due to the large computations that are required, which can overburden a network and result in ineffective scaling.
Hacks and attacks: One of the biggest concerns of dApps, like with other blockchain applications, is the continuous vulnerability of networks as a target for hackers and cyber attacks. Weaknesses or vulnerabilities in dApp smart contracts can be exploited by hackers, resulting in stolen assets or user data, like in the instance of the infamous “DAO Hack” in 2016, which siphoned off over $50 million (3.6 million Ether) of the organization’s finances.
Difficult dApp development: Because decentralized apps operate differently from centralized apps, developers may find it difficult to build a user-friendly experience. Traditional apps require a username and password, whereas dApps require a private and public key to log in.
Delayed decision-making: Because dApps require unanimous agreement from all network participants for every action, updating, debugging, and general maintenance can be time-consuming.
Examples of Decentralized Applications (DApps)
As previously established, decentralized applications can be utilized in the same way as modern software, such as browsers, finance applications, games, social networks, and online shopping. DApps, on the other hand, are blockchain-based, decentralized networks that are secured and run by peer-to-peer consensus models.
The Brave browser is one of the first major dApps that was launched as far back as 2016. The browser is similar in design and functionality to other existing browsers and is based on the same structure as Google Chrome. It allows users to link email addresses, and bookmarks from other browsers and has a blockchain function of allowing its users to get paid in the form of the Basic Attention Token (BAT), which is the native ERC20 token of the Brave browser.
In addition, all data collected through tracking is stored on the Ethereum blockchain and distributed across thousands of computers, making it virtually impossible for any one entity to access your personal information. This is just one example of how decentralized applications (DApps) can use and store data in a way that prioritizes users’ privacy.
Let’s talk about games. One of the earliest blockchain-based games, CryptoKitties, was released in 2017. The dApp is a game that allows users to buy and sell unique virtual cats, and it helped to pave the way for a slew of other blockchain games that have since been developed.
At its peak, the game had over 1.5 million users, which, while first appearing to be a good thing, caused the Ethereum network to slow down. This was owing to the large number of virtual cat transactions that were sent to the network, producing congestion and higher transaction fees.
Steemit is a blockchain-based blogging and social network that was built on its own blockchain called Steem. The platform is similar to traditional social media like Facebook which allows users to create and post content, as well as react and comment on posts. Steem has a native cryptocurrency, STEEM, which is used to reward users for each post and interactions that are initiated.
Unlike other social media platforms, Steem ensures that users’ data are always encrypted and does not support advertisements.
OpenSea is the leading NFT marketplace that was launched in 2017 where most nonfungible tokens are traded. The platform was initially developed on the Ethereum network to support Ethereum NFTs but now supports Polygon NFTs as well, to reduce the transaction fees caused by the congestion on the Ethereum network.
OpenSea is currently home to over 10,000 different NFT projects, including big names such as Bored Ape Yacht Club (BAYC), Crypto Punks, World of Women, and many more. The site has more than 1.5 million active users, and it supports up to 150 different cryptocurrencies.
DApps are an integral part of blockchain technology that is likely to take more refined forms in the coming years, and usher in more crypto users into the market. It presents an opportunity in addition to cryptocurrencies to enjoy the benefits of blockchain-based utility in diverse forms.