Decentralized applications or DApps, as the name suggests, are applications that are not owned and managed by a single authority. It uses blockchain to change how apps and programs have been created so far.
DApps are smart contract powered applications built on top of the blockchain.
They are not centrally owned; instead have distributed ownership of all the users. Examples of DApps include BitTorrent and CryptoKitties.
How Are DApps Better Than Centralised Apps?
To understand DApps better, it would help to know about them in context to traditional centralized applications.
High Level of Data Security
A front end of a traditional application interacts with the back end through an HTTP protocol. Its server is hosted centrally, making it prone to hacks as the hacker only requires breaking into the hosting service to disturb the application.
On the other hand, the front and back end of a decentralized application also interact in the same way; however, the backend is strengthened using blockchain. Its hosting is distributed across nodes on the network, making it a tad harder for attackers as they would have to break into each of these systems, which is impossible.
Additionally, it is impractical to alter the records on the blockchain since every user on the network holds a copy of every transaction on the network vouching for its transparency and security.
The fact that an application is centralized means that you are at the mercy of a single entity. For instance, if Google wants, they can take down your website tomorrow or maybe delete some parts of it. They can control your activity on their platform and have access to all of your information. The decision-making here is centralized.
Contrarily a DApp works on a decentralized consensus mechanism where it requires the participation of every element on the network to modify anything. No one entity can direct its operation.
Its decentralized nature gives everybody in the network control over their information. Thus rather than one entity taking decisions around data and the application, everybody on the network has a say in it. DApps are self-governed, and any changes on the application are decided through the consensus of the majority of users.
There have been many instances recently where centralized applications like Gmail, Instagram, WhatsApp have faced outages. Since we heavily rely on them, their downtime has also had an impact on us.
With decentralized applications, such problems will cease to exist because the hosting and data are distributed across nodes and not dependent on one server. Even if one node stops working, other nodes won’t be affected, and the program would work as usual.
Dapps are usually open-source. Their code is available publicly for anybody to view and contribute to it. Traditional apps, on the other hand, don’t share their code beyond the development team.
Open-source code allows for a lot of transparency between the program and the user. It also opens up a window for constant improvisation from skilled developers.
But you would think that making the code public may lead to your work being copied?. Do you think developers who have done it so far have done it for goodwill? Decentralized applications can be designed such that they can protect developers’ interests even after being open source.
All DApps have a native token for their program that fuels their ecosystem; developers can monetize their platform through these cryptocurrencies.
Faster Payment Processing
Traditional applications have to integrate a payment gateway to allow funds to flow in and out of the application. Since transactions go through a third-party gateway, it is more time-consuming.
DApps process payments faster because:
- They don’t have any intermediary, the native token of the program is used to fuel the ecosystem and
- Transactions are conducted on blockchains which are anyway faster than traditional forms of payments.
How Do DApps Work
A DApp consists of three essential elements:
1. DApp Frontend
The front end is the user-facing interface of the application through which the user interacts with the blockchain. It could be a website, mobile application, etc. As soon as a user interacts, the smart contract is triggered.
2. DApp Backend/Smart contracts
The backend code, which is the smart contract, is a self-executing program stored on the blockchain. In a smart contract, the conditions are predetermined, and as soon as they are met, the smart contract is set off.
Once the smart contract is executed, the blockchain records the activity on its network.
Types of DApps
Moving on let’s look at the three types of decentralized applications:
- Type 1: It includes DApps like Bitcoin, Ethereum, etc., that have their own blockchain.
- Type 2: It entails DApps that are built on the blockchain of type 1 DApp. For example, all applications being built on Ethereum fall into this category.
- Type 3: Similar to type 2 DApps, type 3 DApps also don’t have a blockchain of their own, but they also rely on type II dApps to generate their tokens. It functions on the type 2 protocol.
Use Cases of DApps
Here are some of the widespread use cases of DApps
Decentralized Finance (DeFi)
A whole new breed of decentralized applications has already begun, with over 200 DeFi applications already on the path to redefining traditional finance. DeFi includes all programs that enable users to deal with finance in a decentralized manner:
- Transfer money without the surveillance of central banks.
- Lend and borrow money with no financial institution between the borrower and the lender
- Decentralized insurance issuance and settlement etc
Some DApps currently under this category include Aave, Uniswap, etc.
Logistics and Supply Chain Management
The existing supply chain and logistics are highly inefficient and redundant. There is a lack of coordination and transparency in the process. Corporations can use decentralized applications to streamline such business processes.
They can build DApps to maintain a verifiable and robust record of all the activity in the process; from raw materials to the final product.
For instance, Vechain is a supply chain management DApp that gives each product a unique identity and uses sensors to track the activity at every stage. It helps ensure that there are no frauds in the process.
Decentralized Autonomous Organization (DAO)
DAO essentially involves creating organizations with faceless leaders. These are independent organizations that run on rules predefined by programming on the blockchain. The program presets the functioning of such organizations and defines the business it will engage in, the use cases of its token, etc.
Users on the network own the organization and have a common interest. For instance, DAO is a DApp that falls into this category; it is a venture capital fund that allocates funds based on the votes from its users.
Decentralized applications have brought about a lot of advancements for creating applications and programs. It has strengthened the backend enabling it more robust and scalable with the sheer underlying quality of being decentralized.