With the popularity of blockchain technology increasing, attention is now shifting to a particular group with enormous potential – decentralized applications (dApps). Daily unique active wallets linked to dApps increased seven-fold in 2021, reaching an all-time high of 2.7 million at the end of last year. Trading volumes have never been higher. This lends further support to the notion that dApps are generating a lot of interest – and why you should pay attention to it. We’re examining what is a dApp and everything you need to know about Decentralized Applications in this post.
A decentralized application (dapp) is a software program that runs on a decentralized network and employs a smart contract (such as Ethereum smart contracts) along with a frontend user interface. Smart contracts on blockchain networks such as Ethereum, Avalanche, etc., are accessible and transparent, essentially like open APIs, allowing your dapp to include a smart contract written by someone else.
What is a dApp and Decentralized Applications?
A dApp or a decentralized application is simply a web application that has its backend code running on a decentralized peer-to-peer network. A traditional Web App or web application instead, has the backend code running on centralized servers.
A dApp can include any language(just like an app) in its front end to interact with its backend. Furthermore, the front end of the dApp may be hosted on decentralized storage, such as IPFS.
dApps as the name implies are decentralized. This means that dApps operate on open public decentralized platforms like the Ethereum network. Such platforms are not controlled by any single authority or person. Furthermore, dApps are deterministic and Turing complete, which allows them to execute the same task regardless of the environment in which they are run and can do anything given enough capacity.
Finally, dApps run in their own isolated environment called a virtual machine. Because dApps are run within a virtual environment like the Ethereum Virtual Machine, any flaws in the smart contract will not impact the network’s normal functioning.
Benefits of Decentralized Applications
The following are some of the benefits of decentralized applications:
One of the most significant advantages of a decentralized app is that it does not require users to provide sensitive information in order to access an app’s features. Smart contracts are used in dApps to execute the transaction between two unknown people.
A dapp is a decentralized application that runs independently by a community of users, without the need for external intervention or third-party involvement. This implies that decentralized applications (as defined by the name) do not require centralized, hierarchical organizations to make judgments or implement changes. This isn’t correct in conventional systems; for example, when we use online banking services, we must trust that financial institutions will protect our sensitive information from misuse, tampering with records, and hacking.
To ensure that data stored on a blockchain is unaltered and resistant to change, the blockchain’s consensus algorithms guarantee that data kept is secure. It would also be unlikely for a hacker to target enough nodes to cancel out a dApp owing to the fact that it has an attribute of fault tolerance, which states that even if one node in the network is operational, the decentralized platform may still operate.
Resistance to Censorship
Users cannot be prevented from creating transactions, deploying dApps, or reading data from the blockchain by any single node on the network.
Once a smart contract is deployed on the blockchain, it is always accessible to users wanting to interact with it. As a result, hackers are unable to conduct denial-of-service attacks against an individual decentralized App. The Ethereum blockchain is a versatile infrastructure that allows for the fast development of dApps for many sectors, providing an environment in which developers may concentrate their efforts on creating new digital applications.
Drawbacks of Decentralized Applications
Decentralized applications are in their early phases and, like any new technology, they are subject to uncertainties. The following flaws and shortcomings may be expected when investing in a decentralized setting:
There are concerns about whether such apps can scale effectively over time when compared to conventional networks. If the operation of an app needs a lot of computational power, this might be difficult, resulting in severe network congestion.
It’s more difficult to maintain dApps because the code and data published on the blockchain are more difficult to change. Even if bugs or security issues are discovered in an old version of a dApp, it’s tough for developers to make changes to it (or the underlying data stored by a dApp).
Conventional apps are typically simple to use for typical digital audiences, who are accustomed to a specific sort of user interface. End users must acclimate to new procedures such as using private and external login keys instead of the usual usernames and passwords.
On the contrary, user-friendly and developer-friendly solutions built on top of a Smart Contract platform’s foundations may well resemble centralized services in the end. For example, such services might keep keys or other crucial data on the server and serve a frontend using a central server before writing to the blockchain. Centralization eliminates many (if not all) of blockchain’s benefits over the conventional system.
How do dApps make money?
There’s usually a misconception that decentralized applications are free, however, that is not the case. There’s a team behind decentralized applications that requires funding in order to keep development going and fund its operations like any other conventional company. No one wants to work for free, would you?
Some of the main ways the teams behind decentralized apps fund their operations include:
Initial Token Offering (IDO, ICO, IEO, etc.)
This is more of a crowdfunding mechanism where teams raise money in exchange for their tokens. The tokens have a certain utility within the dApp ecosystem that is valuable to a group of individuals willing to fund the early stages of various projects. That is not always the case, but that should have been the case.
Fees collected on the dApp
There are many different types of decentralized apps that may require users to pay a small fee when they are using the platform. This can be a subscription basis or a transaction basis. The fees collected on these platforms usually are distributed to the team to fund the continued development of the platform. Depending on the nature of the dApp, a large portion of the fees can also be distributed back to the community who provide their services on the dApp.
Examples of Decentralized Applications
Blockchain technology enables users and developers to use smart contracts and develop a range of decentralized applications. Some of the most common groups of applications include decentralized finance (DeFi), games (GameFi), decentralized social media platforms (SocialFi) as well as various types of marketplaces with the most common one being NFT Marketplaces.
Decentralized Finance (DeFi)
Decentralized Finance is a group of decentralized applications that aim to replicate the existing traditional financial services on the blockchain. This includes decentralized exchanges, decentralized lending platforms, and money markets, as well as decentralized fund management platforms.
In addition, blockchain technology has enabled the creation of new types of services, that were not previously possible. One such case is the fractional ownership of real assets and real assets tokenization overall.
Blockchain Games & GameFi
GameFi is one of the biggest trends in the space that enabled developers to build games as decentralized applications incorporating also elements from the DeFi world. This group of applications in essence allows games to run or partially run on a blockchain network where the game economy is powered by fungible and non-fungible tokens. Users can exchange these assets to progress in the game or can use in-game characters from one game to another.
Decentralized Social Media Platforms & SocialFi
SocialFi, similar to GameFi is one of the biggest trends currently in the space that aims to build the next generation of social media platforms. Decentralized social media are a group of decentralized applications that mimic the traditional social media platforms while giving data ownership back to content creators and users. Provide new means of monetization, embrace free speech and prevent public manipulation like we’ve seen in many cases with centralized social media platforms.
NFT Marketplaces have a look and feel similar to centralized marketplaces, however, their aim is to allow users to exchange Non-Fungible tokens. Currently, NFTs are mainly used to create collectibles, and that’s the main focus of NFT marketplaces right now. However, NFTs have much wider applicability and with time we will see more and more use-cases where NFTs are applied.
The world of decentralized applications is vast and still relatively new. We are only starting to see the potential of what can be built on a blockchain. New use cases and application types are being developed every day, and the sector as a whole is growing rapidly. It is an exciting time to be involved in the space, and we can only imagine what the future holds for decentralized applications.
I hope this article helped you understand what are decentralized applications, how they work, and what are some of the most common types out there.