Decentralized Application (dApp)

What Is a Decentralized App?

A decentralized application (dApp) is a software application that operates on a blockchain platform. As with cryptocurrencies, dApps rely on this distributed and decentralized environment. Instead of being isolated inside of a central server or “walled garden,” as with traditional software packages, the underlying resources for dApps are held in a consensus model among stakeholders.

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Decentralization means that no single individual or entity has complete control over an app, enabling more users to contribute to its development and limiting censorship. DApps represent another step toward autonomy and open design that is important in the open-source development community.

Companies have created all sorts of decentralized apps, including gaming, finance, and other sorts of functional “dApps.” These applications are transforming application development by offering greater security, transparency, and autonomy.

How Do Decentralized Apps Work?

Decentralized applications are stored and executed on a blockchain platform. They are validated using cryptographic tokens.

A blockchain is a form of distributed ledger that maintains a transparent and immutable record of transactions within a network of nodes, or computers, which carry out cryptographic validations.

DApps do not depend on centralized servers and databases. Instead, they use smart contracts on the blockchain to enforce predefined rules through code. By removing the need for a central server, dApps eliminate the risk of having a single point of failure.

Like conventional software applications, dApps employ front-end code to make calls to the back end.

However, their back-end code differs as it relies on decentralized peer-to-peer (P2P) networks rather than centralized servers to run the app. This ensures that no single authority can take control. DApps are open source, so the code is publicly available for all users to evaluate, and any change to an app needs to be agreed upon by consensus.

A smart contract essentially comprises back-end code, and to enable dApp functionality, multiple smart contracts must combine with third-party systems for the front end. Front-end code can be hosted on decentralized storage such as the InterPlanetary File System (IPFS) file-sharing network.

Key Features of DApps

  • Decentralized infrastructure: DApps are powered by open, public peer-to-peer blockchain networks rather than centrally-controlled computer servers.
  • Deterministic: DApps perform the same function regardless of the environment in which they are executed.
  • Smart contracts: Smart contracts are self-executing contracts with preset rules written into their code. They automate processes and ensure that transactions occur transparently and securely.
  • Isolated: DApps are executed in a virtual environment so that if the smart contract has a bug, it will disrupt the blockchain’s operation.
  • Consensus mechanisms: DApps rely on consensus mechanisms to validate and record transactions. They ensure agreement on the state of the blockchain, maintain data integrity, and limit fraudulent activity. Popular consensus mechanisms include proof-of-work (PoW) and proof-of-stake (PoS).
  • Tokenization: Most dApps use cryptocurrency tokens as a means of value exchange. Tokens can represent ownership, access rights, or other functions in the app. Tokenization enables efficient micropayments, rewards users for participation, and enables decentralized governance.

Decentralized App Examples

There are many different types of dApp that can be used by a range of users and industries. The Ethereum blockchain has become a popular platform to host dApps.

  • Decentralized finance (DeFi) apps: DeFi apps provide financial services without the need for traditional financial institutions to act as intermediaries. DeFi apps provide lending and borrowing, trading, and yield farming options determined by smart contracts. DeFi apps include lending protocol Compound and decentralized exchange (DEX) Uniswap.
  • Decentralized social media: Social platforms built on blockchains aim to give users control over their data and provide rewards – often in the form of cryptocurrency tokens – for contributing content. Decentralized social media apps include microblogging platforms Mastodon and Steemit.
  • Decentralized gaming: Games that run on blockchains can use non-fungible tokens (NFTs) to represent ownership of in-game items and reward users for their gameplay with cryptocurrencies. Developers can create content connected to a game, and players can vote on the way the game functions. Decentralized gaming apps include Axie Infinity, Gods Unchained, and The Sandbox.
  • Decentralized music: Decentralized music platforms provide an alternative to centralized streaming services, empowering artists to control their work and receive a fair share of the revenue they generate. Examples include Audius, OPUS, and BitSong.
  • Decentralized file storage: Decentralized storage apps use the peer-to-peer functionality of blockchain platforms to create a distributed network of storage space. This is designed to make them more secure, fault-tolerant, and resistant to data breaches than centralized storage. Decentralized storage apps include Storj, Filecoin, and Swarm.
  • Supply chain management: DApps for supply chain management enable businesses to track the movement of physical goods from the manufacturer to the consumer. They aim to enhance transparency and authenticity throughout the supply chain.

Advantages and Disadvantages of Decentralized Apps

8 Pros of DApps:

Decentralization Prevents a single authority from maintaining control and has each stakeholder involved in decision-making.
Enhanced Security Unlike centralized applications that operate from physical devices, decentralized apps are more resistant to cyberthreats, making it difficult for malicious attackers to compromise the entire network.

DApps safeguard user privacy as they do not require personal information to function. Smart contracts complete transactions between anonymous parties without relying on a central authority

Efficiency DApps can simplify various processes. For instance, you send money instantly at little to no cost, saving time and money compared with bank transactions that can charge high fees and take several days.
Convenience DApps can be used in a wide range of industries, such as gaming, finance, file storage, and logistics, and despite differences in back-end operations, the way they work is consistent across networks.

For instance, the Ethereum Virtual Machine (EVM) environment used on many blockchains provides developers with standard infrastructure for their dApps, fostering rapid deployment and innovation.

Censorship Resistance DApps apps are inherently resistant to censorship. As there is no central authority in control, it is difficult for any entity to shut down or control the app’s content or functionality. This is important for apps that promote free speech or involve sensitive information.
Transparency and Immutability The use of blockchain technology ensures all dApp transactions and actions are recorded on an immutable public ledger, providing a transparent view of its activities. This fosters trust among users.
User ownership DApps prioritize user ownership over their data and assets. Without a central intermediary, users have direct control of their information and can decide how it is used and shared within the network.
Global Availability Traditional apps can be limited by jurisdictional regulations and restrictions. But dApps can be accessed by anyone with an Internet connection, regardless of their geographical location. This creates new opportunities to reach individuals in underserved regions.

8 Cons of DApps:

Scalability challenges Blockchains can experience performance bottlenecks as the number of users and transactions increases. This can reduce processing times and increase transaction fees during peak periods.

The use of dApps is still in the early stages, and there are questions as to whether they will be able to scale effectively.

Vulnerability risk Bugs or security loopholes in smart contracts can cause DApps to behave in unexpected ways or be exploited by malicious attackers to gain unauthorized access, manipulate data, or steal funds.

Even small coding errors or oversights in smart contract logic can have serious consequences, as the code runs autonomously on the blockchain without any human intervention.

Energy consumption Some blockchains use energy-intensive PoW consensus mechanisms, raising concerns about the environmental impact of the dApps that run on them.
Limited modification Once deployed, a dApp is likely to require ongoing changes to make enhancements or correct bugs and security risks. However, it can be challenging for developers to update dApps because it is difficult to modify data and coding once they are published to the blockchain.
Harmful content Centralized app administrators or moderators can remove or restrict content that violates community guidelines, promotes hate speech, or spreads misinformation.

However, the lack of central authority over dApps can result in the proliferation of misinformation, hate speech, and malicious or illegal content.

Lack of reversibility While immutability ensures data integrity, it also means that blockchain transactions are irreversible. This makes it difficult to retrieve lost or stolen funds or rectify mistakes.
User experience Interacting with blockchain technologies and cryptographic wallets to use dApps can be challenging for non-technical users, hindering mass adoption.

The transition to dApps requires developers to create user-friendly interfaces that rival established centralized apps.

Regulatory uncertainty Decentralization can create regulatory challenges. It is difficult to enforce certain regulations and protect users from scams as blockchains, and dApps operate beyond the control of centralized authorities.

The Bottom Line

The development of decentralized applications is creating new functionality and possibilities for software services.

By leveraging blockchain technology and smart contracts, dApps eliminate the need for central authorities, providing users with greater control over their data and assets.

Decentralized apps offer numerous advantages, from enhanced security and transparency to user ownership and global accessibility. However, they also face certain challenges, such as scalability issues, regulatory uncertainties, and complexities in the user experience.

Understanding how dApps work and their pros and cons can help you to understand their useability and potential as the landscape continues to evolve.

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Nicole Willing

Nicole Willing has two decades of experience in writing and editing content on technology and finance. She has developed expertise in covering commodity, equity, and cryptocurrency markets, as well as the latest trends across the technology sector, from semiconductors to electric vehicles. Her background in reporting on developments in telecom networking equipment and services and industrial metals production gives her a unique perspective on the convergence of Internet-of-Things technologies and manufacturing.