Decentralized applications, simply known as dapps, are applications built on top of the blockchain networks like Ethereum and make use of smart contract to function. Since the dapp is decentralized, no single entity can establish control over it, hence removing the centralized control that is typically found in web 2.0-based applications like Twitter.
In this guide, we will explore the meaning of DApps, understand key differences between centralized and decentralized apps, check out some of the most common types of dapps, and much more. Let’s get started.
Introducing Decentralized Applications
Decentralized applications DApps feel like regular apps but when you go backstage, you will find some interesting properties that are exclusive to dapps only: no owners, no censorship, built-in crypto payment solution, no downtime, cryptography support, single anonymous login, and more.
Hence, using the dapp doesn’t require a typical registration process that requests the personal information of the user. Instead, the users can simply connect their decentralized wallet like MetaMask as a single anonymous login to connect to the dapp.
There may be multiple users on one side, but the backend is controlled by a single organization.
Centralized and Decentralized Apps: Key Differences
Centralized apps, or simply apps, that we interact with on a daily basis like Uber or Instagram are created, deployed, and maintained by a single central authority. This means that the personal information submitted to these applications is stored in a centralized database maintained by the companies behind these apps.
These applications are also typically closed-source, meaning that the code on which they run is not open to the public, and only the company’s development team can manage and maintain its operative functions. In other words, while the apps can be as customizable as possible from the user's perspective, the backend is completely controlled by the owning company.
DApps mainly diverge from their conventional counterparts. Instead of reporting back to a specific server of a specific company/entity, dApps report back to the blockchain, and allow users to interact with the technology through a user-friendly interface and decentralized wallet.
The dapps are not governed by a single entity but are governed by encoded smart contracts, which are rules running on open-source code, meaning that any developer can view and suggest improvements to the code.
How Do Dapps Work: Development, Launch, and Maintenance
The decentralized applications Dapps are built on top of the blockchain networks like Ethereum and leverage the power of the decentralized technology to process the data across a distributed decentralized network with smart contracts helping in the execution of the transactions.
While the majority of dapps operate on the Ethereum network, they can be built on any other blockchain decentralized network supporting smart contracts like BNB Smart Chain, Cardano, Avalanche, Solana, Tron, and Polygon.
Smart contracts play a critical role in any dapp by enabling the self-execution of the transactions whenever the codified terms and conditions are fulfilled. This not only removes the need for a central authority to manage the decentralized transactions but the immutability of the terms and conditions fed into the smart contracts protects the integrity of the code and makes it impossible to perform any alteration.
To put it in the other words. dApps are decentralized because they are governed by smart contracts and logic, rather than a company. There are several defining characteristics of decentralized applications DApps listed below:
I. Open Source: The code on which a dapp runs is open to the public. Any developer may view it, suggest improvements, and identify weak points. Any change to be made to the protocol is passed through a voting mechanism.
II. Native Token: Every dapp has a native token that fulfils the need for payments, staking, voting, governance, and various other functions within the dapp. For example, the native token of PancakeSwap is $CAKE which is used for a wide variety of functions within the dapp like farming, staking, governance, etc.
III. Information: The information is stored in a blockchain networks that is publicly accessible by anyone. For example, information regarding all the transactions executed through PancakeSwap (a dapp built on top of BNB Smart Chain) can be accessed through BscScan, the blockchain explorer for BNB Smart Chain.
What Does a Dapp Launch Look Like?
Launching a dapp is a step-by-step process that starts from the identification of the problem and is completed when the funds are raised. This might look similar to the approach followed by apps developed in the web 2.0 landscape, but the differences are found when we get into the details. Have a look below:
Identify the Problem
Select the Blockchain Network
Development and Testing
Raising Funds
Benefits and Limitations of Dapps
Understanding the benefits and limitations of dapps is essential to have a 360-degree apprehension of the topic. Let’s dive in.
Advantages of Dapps
Transparency: DApps are laid out by smart contracts, which are completely public and viewable. The implication is that anyone can view the open-source code of the dapp and understand how it works.
Censorship Resistant: The lack of a central authority also ensures that dapps remain censorship-resistant, no single entity can block nodes from submitting data transactions or deploying dapps.
Immwutability: Smart contracts deployed in the dapps are programmed and behave in predictable ways, so the users are ensured that their data or transactions are not to be tampered with.
No Downtime: Centralized applications are run through one main server, meaning that if the main server crashes, the app will stop working until it is fixed. As information processing is distributed in a dapp, if one node stops working, the workload will be undertaken by the remaining nodes in the decentralized networks.
Challenges of Dapps
Code Compromise: Since the code of a dapp is open-source, it exposes the smart contract to hackers for the identification of loopholes that can compromise the dapp and risk the funds of many users.
Complex: Blockchain technology is complex for common users to understand, hence they often have to experience a tough time connecting the DeFi wallets to the dapp, transporting the funds across the dapp, using the blockchain explorer to track the transactions, and more.
Network Congestion: Most of the dapps are built on top of the Ethereum network, which is struggling with scalability issues at the moment. Hence, if an Ethereum dapp receives too many requests, the inability to process all of them at speed leads to network congestion which increases the gas fees and time to complete the transaction.
Most Common Types of Dapps
Despite being a relatively new invention, there are already libraries full of decentralized apps and users’ favourite categories: decentralized finance (DeFi), blockchain games, and NFT marketplaces.
Financial Dapps
A lot of dapps serve the purpose to foster the idea of decentralized finance — a blockchain-based monetary protocol using smart contract to eliminate the need for intermediaries such as brokerages or banks in finance.
While most of them are DEX (decentralized exchanges) platforms through which users can trade and swap different cryptocurrencies, lend the cryptocurrency, and borrow the cryptocurrency, there are more versatile examples.
Borrowing and lending of cryptocurrencies, for example, is possible through dapps like AAVE that also empower the users with an opportunity to earn interest by contributing liquidity to the crypto lending pools.
Gaming Dapps
There’s a significant diversity as far as gaming dapps are concerned, with niches ranging from strategy games to gambling of all sorts, including dice rolling, coin tossing as well as poker and roulette.
The gaming dapps, also known as play-to-earn games are designed to reward the gamers in crypto and NFTs for winning the challenges, completing certain tasks, or battling other players. The in-game digital items (NFTs) that the players earn while playing the game can be sold in the native NFT marketplace of the game for a margin.
Unlike web 2.0 games where the gamers have to pay to play while spending money to acquire in-game items that do not have any monetary value in real-life, play-to-earn games disrupt this practice and bring the value back to the gamers for contributing their time, skills, and dedication in the product.
Some of the most popular gaming dapps include Axie Infinity, Gods Unchained, Splinterlands, Pegaxy, Illuvium, REVV Racing, and more.
NFT Marketplaces
NFT Marketplaces are platforms that allow users to buy, sell, and even create NFTs under a single roof. While some of these NFT marketplaces are designed for a specific niche, there are other platforms as well where you can trade NFT belonging to different categories. The most popular and largest NFT marketplace is OpenSea, known for allowing users to trade NFTs built on top of different blockchain networks including Arbitrum, Avalanche, Ethereum, Klatyn, Polygon, Optimism, and Solana.
Will Dapps Stick Around?
Dapps possess the shortcomings of being a novel technology. Nevertheless, they allow the average user to experience the wonders of blockchain technology including but not limited to: no censorship, built-in crypto payment solution, no downtime, single anonymous login, and more.
According to a report from the DappRadar, it was revealed that an average of 2.47 million UAW (Unique Active Wallets) connected to the decentralized application per day in January 2022. This interesting find reveals that the users are understanding the benefits of the dapps and are trying to explore the advantages that they bring. Hence, it is quite clear that the dapps will stick around.
