Decentralized applications (DApps) are digital applications or programmes that exist and run on a blockchain or peer-to-peer (i.e. P2P) network of computers. DApps, which might resemble ordinary mobile applications on your phone in appearance but have a distinct backend system, as these are not subject to the control of a single authority. DApps function by using smart contracts on a distributed network as opposed to a centralized system. These features make DApps more open, decentralized, and secure as a result. A smart contract functions as a collection of predetermined rules that computer code enforces. The tasks specified in the contract will be carried out by all network nodes when and if specific conditions are satisfied.
DApps share the following features:
Open-sourceness: This allows anybody to access, verify, use, copy, and edit their source code. The vast majority of the DApp tokens are not controlled by a single entity. Users are also able to suggest and vote on DApp improvements.
Decentralization and Cryptography: To protect data, the DApp stores all of its data on a public, decentralized blockchain that is maintained by a number of users (or nodes).
Tokenization: A cryptographic token is required to access DApps. They can use native tokens created using a consensus mechanism like Proof of Work (PoW) or Proof of Stake (PoS), or they can adopt cryptocurrencies like ETH. Additionally, contributors like miners and stakers can be rewarded with this token.
DApps are present on the Ethereum network and on other blockchains, such as BNB Smart Chain (BSC), Solana (SOL), Polygon (MATIC), Avalanche (AVAX), EOS.
To interact with a DApp, you first need a compatible browser extension wallet like MetaMask, or Trust Wallet.
Benefits and Limitations of DApps¶
While DApps and conventional apps may have similar-looking user interfaces, DApps have some advantages over their centralized alternatives. Data is kept on centralized servers by web applications. The entire network of the app might be brought down by a single hacked server, rendering it inoperable for a while or ever. Data leaks or theft may occur in centralized systems as well, endangering businesses and consumers.
DApps, in contrast, are created via decentralized distributed networks. DApps have no single point of failure, making them less susceptible to assaults and making it exceedingly challenging for bad actors to take over the network. The P2P network can also guarantee that the DApp keeps running with little downtime even if a few machines or a section of the network go wrong. Users may exercise more control over the data they disclose because of DApps' decentralized nature. Users do not need to reveal their real-world identities in order to communicate with a DApp because no corporations are in charge of their personal data. Instead, individuals may connect to DApps using a crypto wallet and have complete control over the data they disclose.
Another advantage of DApps is that by utilizing smart contracts, developers may quickly include cryptocurrency into their core functions.
DApps on Ethereum may accept ETH as payment without integrating external payment services.
When it comes to illustrate the limitations of DApps, we first need to highlight the fact that DApps have the potential to play a significant role in a world without censorship. However, decentralized apps are still in their infancy, and the market has yet to find solutions to problems like scalability, code revisions, and a small user base. DApps might overburden the networks they run on since they demand a lot of computational power to function.
Another difficult task is modifying a DApp. A DApp does require continual updates to repair problems, update the user interface, and introduce new functions in order to improve user experience and security.
It is challenging to change the backend code of a DApp once it has been put on the blockchain, though. Any modifications or enhancements would need to be approved by a majority of the network's nodes, which would take a while to put into practise.
It is challenging for one DApp to stand out and draw a lot of users when there are so many others available. A DApp has to have a network effect in order to function properly. This is, the more users a DApp has, the more efficient it becomes at offering services. The DApp may be made more secure and shielded from hackers tampering with the open-source code by having more users.
GameFi DApps are becoming more and more well-liked. The majority of gaming DApps give players complete control over their in-game assets, in contrast to conventional video games. They also provide users the chance to earn money from these things outside the game.
One of the most successful DApp in this sector is the play-to-earn game Axie Infinity on the Ethereum blockchain. Axie Infinity offers NFT-based game avatars, virtual worlds, and gaming-related merchandise. Players can trade with other players on NFT markets, move them to other Ethereum addresses, or keep them in their digital wallets. Players can compete with one another inside the ecosystem to amass ERC-20 tokens that can be exchanged. Generally speaking, players may earn more in-game incentives the longer they play.
DEXs - Decentralized Exchanges¶
The intermediaries in traditional finance are financial institutions. Everyone may access financial services with DApps without the need for a centralized authority and have total control over their assets. Low-income people can also profit from DeFi since it gives them access to a wide range of financial services at a considerable cost savings.
The most common financial services offered by decentralized apps are borrowing and lending. Instant transaction settlement, little-to-no credit checks, and the usage of digital assets as collateral are all features of DeFi DApps. Users in DApp lending markets have greater freedom. Another essential example of financial DApps is decentralized exchanges (DEXs). These platforms make peer-to-peer trading easier by getting rid of middlemen like centralized cryptocurrency exchanges. Users are not required to give up control of their funds. With the aid of smart contracts, people trade with another user directly rather than putting their assets into an exchange. Orders are carried out directly between the users' wallets and on the blockchain. In comparison to centralized exchanges, DEXs often charge cheaper trading costs since they require less maintenance.
DApps enable the transformation of entertainment daily activities into digital experiences that can also produce financial incentives.
For instance, Audius, a decentralized music streaming network built on blockchain, eliminates the middlemen present in the conventional music industry to connect artists and listeners directly. By creating permanent records of their labor on the blockchain, it enables music curators to better monetise their material.
DApps are addressing problems that users of social media platforms encounter. Twitter and Facebook, two centralized social media behemoths, are frequently attacked for editing content and treating user data carelessly.
An example on decentralized social media platform is given by Steemit. In there, the community can interact freely and express their opinions with fewer limitations and censorship while also having more control over their personal data.
DApps can enable users to participate more actively in the administration of online organizations by establishing a decision-making process that is more focused on the community. Users with governance tokens of a certain blockchain project can make suggestions for the community to vote on and vote on other people's ideas anonymously with the use of smart contracts.
Decentralized Autonomous Organizations (DAOs) are one of the decentralized governance models. DAOs are completely autonomous DApps that employ smart contracts to decide for themselves without the need for a central authority. There is no hierarchy there. Instead, economic processes bring the organization's interests into line with those of specific DAO members.