What Are Decentralized Apps (DApps)?
Decentralized applications (dApps) are open-source applications which today run on public blockchains in a peer-to-peer (P2P) format. One of the key use cases of Blockchain technology, dApps allow users to perform all manner of tasks without the need for a centralized intermediary or middleman by using smart contracts.
Blockchain dApps have been around for less than a decade, but are growing at a phenomenal rate, and as of 2023 have expanded beyond Ethereum to launch on blockchain networks including Solana, Polygon and Binance Smart Chain (now called BNB Chain).
What Makes A DApp?
DApps are essentially a decentralized version of the kind of consumer web interfaces which have long been used to interact with entities online. Instead of interacting with a corporate server, for example, dApp users are able to accomplish tasks by communicating directly with the blockchain, and operations are fulfilled using smart contracts — code instead of middlemen.
The lack of a centralized third party is a key difference between dApps and their ‘traditional’ counterparts, which include standard apps and web apps.
This is far from the only difference between dApps and other apps, however; there are many key features which differentiate this nascent space from the products and services which came before.
Open-Source Code
While the concept of a dApp itself continues to evolve, there are some key characteristics which they share. One of these is open-source code.
DApps rely on their underlying blockchain network — in most cases Ethereum — to function, but aside from the developers who code them, no centralized maintenance is required once they are launched.
The code used to allow the dApp to operate nonetheless should be visible to anyone who cares to view or test it — without this, the resulting app would lack the transparency which forms a key part of its use case to begin with.
Use Of Decentralized Blockchains
It goes without saying that a decentralized interface will function on top of a correspondingly decentralized blockchain to fulfill its remit.
DApps thus utilize existing public blockchains to function. Originally, this was Ethereum, but as time goes on, developers are launching them elsewhere, including Solana, BNB Chain, Polygon, EOS, Avalanche and more.
These blockchains are essential because they store the smart contracts which execute as part of users’ interactions with the dApp itself. They also allow data to be stored in a decentralized manner, thus taking care of a dApp’s security and some aspects of censorship resistance.
Arguably the best-known entity which embodies both the above ideals — open-source code and a decentralized blockchain — is Bitcoin itself.
In fact, some argue that Bitcoin is the ‘ultimate’ dApp — while its use case is specific in transferring value around peers in a network, it uses the key principles of decentralization to achieve it flawlessly without third-party supervision.
Incentive schemes
Depending on the type of project a dApp represents, there may need to be a form of incentive to keep users and participants in its underlying blockchain active.
DApps come in a wide variety of forms, and many popular altcoins are in fact dApp tokens used for incentivization purposes. Key examples of this are decentralized exchanges, or DEXes, which have in-house tokens fulfilling multiple roles. A DEX is nonetheless a dApp which allows users to trade tokens in a decentralized manner using smart contracts instead of a centralized intermediary.
For more information on DEXes, read the dedicated TabTrader Academy article here.
Who Invented DApps?
DApps are a new phenomenon for most, but their novelty mostly pertains to their role in bleeding edge crypto technologies such as decentralized finance (DeFi).
In fact, DApps in their broadest definition have existed far longer, and according to some even predate the birth of Bitcoin and blockchain technology itself.
In the pre-blockchain world, there were still services which utilized P2P to create a quasi-decentralized online world with a variety of functions, mostly focusing on distributed filesharing.
Classic examples of these include BitTorrent, which subsequently embraced blockchain technology and even launched its own crypto token.
Similar services popular in the early 2000s were Limewire, a filesharing resource particularly popular for P2P media sharing, and the more controversial Napster.
DApps Today
The ‘modern’ dApps that are now ubiquitous in the cryptocurrency space are technically fundamentally different to their predecessors such as BitTorrent.
The definition of a dApp has itself evolved to include a practically infinite number of use cases. Essentially, however, today’s dApp implementations leverage blockchain technology in order to provide a decentralized service.
Whether it is P2P trading via a DEX liquidity pool or producing non-fungible tokens (NFTs), blockchain is what allows the latest generation of dApps to function.
Ethereum was the original go-to network for launching code that constitutes a dApp, but more recently, other networks have begun to attract attention, these including BNB Chain and Solana.
Nonetheless, the majority still use the Ethereum blockchain as of 2023, and not without reason — Ethereum brought in smart contracts, which are the key mechanism allowing dApps to operate in a permissionless manner.
Unlike the pre-blockchain ‘dApps’ of old, today’s implementations use smart contracts to conclude transactions and interactions between users automatically in a way which cannot be interrupted or corrupted once launched.
DEXes, for example, rely on smart contracts to execute token swaps without the need for a centralized order book or third party deciding on which trades can and cannot be completed.
How Do DApps Work?
How dApps work very much depends on the individual ‘dApp’ involved, as the term covers a wide and increasingly broad range of applications.
In general, however, today’s dApps share some key features which differentiate their operation from that of traditional apps and web apps.
The most obvious of these is dApps’ use of blockchain technology. Blockchain fulfills the role of a backend and centralized servers that users interact with when they use regular apps, be it on a smartphone or an in-browser web app.
Blockchain networks host the code which constitutes the dApp on a technical level, and that Blockchain’s functionality is a key component of dApps running smoothly.
Related to this is the fact that some, but not all dApps feature native crypto tokens, use of which can be mandatory to interact with their features. These tokens can have various roles, from maintenance to transaction fee settlement and governance.
In terms of how dApps conduct operations between users, another key identifying factor comes from their use of smart contracts. These are the code behind dApps, and their automated and incorruptible nature is what allows them to function without middlemen or any single party engaging in censorship.
In the case of a DEX, for example, access rights can be a simple matter of purchasing a token for fee payment and linking a crypto wallet. A traditional crypto exchange meanwhile might demand user identification to begin trading along with purchasing one or more tokens, as well as arbitrarily deciding whether they can then use the exchange and how much.
While smart contracts in and of themselves are simple, their flexibility to allow users to enter into trustless agreements — providing both parties meet their obligations — means that they can be applied to all manner of interactions.
Pros And Cons Of DApps
DApps may be steadily reconstructing the way in which users interact with online services, but they still have a way to go before being considered a ‘silver bullet’ for the headaches present in centralized alternatives.
In addition to their one-of-a-kind benefits, they also present new challenges which both developers and users need to be aware of.
Pros
- DApps run on decentralized blockchains, and as such, thanks to those networks’ node distribution, they have no single point of attack. This makes decentralized alternatives to regular apps harder to take down, infiltrate or corrupt.
- Decentralization has other advantages — no single centralized server removes the chance of ‘blanket’ downtime.
- Even if the underlying blockchain experiences difficulties — for example, a node exodus or consensus issue — the remaining portion of the network will continue to ensure that the blockchain continues to function, as they are incentivized to do so. The chances of a dApp’s data being lost are thus reduced.
- Smart contracts provide immutable agreements between users which are written in code — there is no arbitrary or subjective decision-making which prevents certain interactions between users. If the conditions written in code are met, the transaction or other event executes automatically, and cannot be stopped. DApps are thus significantly less exposed to censorship.
- A consequence of this code-based automation is cost efficiency. DApps keep costs to a minimum because there is no third party or middleman to pay beyond the fees associated with their underlying blockchain.
- If a dApp performs transactions as its main use case, these will be both cheaper and faster thanks to the same absence of a centralized processing authority with its own set of incentives and costs.
Cons
The drawbacks dApps currently experience are common to decentralized blockchains in general. They include:
- The need for consensus in order to enact changes or updates to the underlying code.
- The larger number of nodes involved in the underlying blockchain, the better, but too few can impact security.
- Security vulnerabilities. While open-source code allows anyone to vet dApps for weaknesses, that includes malicious parties looking to exploit those weaknesses if found.
As the crypto industry expands, these problems are slowly becoming mitigated thanks to broader engagement, more thorough developmental procedures and incentives to ensure a suitable level of security and integrity of code.
Web Apps vs. DApps
TabTrader users will be familiar with web apps thanks to the dedicated web-based integration of the TabTrader terminal for web that we launched last year.
The term “web app”, however, covers an equally wide range of products and services as the term “dApp” does. Web apps are in fact a lot more than simply a ‘version’ of an app or other product for web browsers. In its broadest sense, a web app even includes everyday services such as the Twitter news feed.
Behind the scenes, though, there are key differences between how dApps and web apps operate. Like mobile apps, web apps are centralized interfaces, and do not use a decentralized blockchain to operate — instead, they use a backend server.
Both web apps and dApps nonetheless can be used to deliver a similar experience for users. In each case, a user communicates with a frontend interface, but a dApp requires different methods of communicating with the app’s code, i.e. a wallet linked to the underlying blockchain.
What Is The Future Of DApps?
As mentioned, dApps have an extremely wide range of use cases — one which is exponentially increasing with time.
It is not just due to the fact that the term “dApp” covers a plethora of existing services; the momentum with which the crypto industry is expanding means that, in all likelihood, the dApp sector is only just getting started.
As such, it is safe to say that the majority of major implementations is still to come, as crypto itself is in a constant state of flux not even fifteen years since the creation of Bitcoin.
Some key challenges that the developers of the future will need to overcome, however, lie in scalability. True dApps remain a niche sector, partly due to a lack of mainstream knowledge and understanding of crypto and how to use it.
In addition to simplifying interaction with dApps and making their use more intuitive, creators of new products and services will need to address the processing capabilities of all components in the chain — from the code itself to the limitations of a dApp’s underlying blockchain.
The allure of decentralization nonetheless makes for a compelling future in and of itself. With the emergence of DeFi, for instance, anyone with a wallet now has the opportunity for anonymous financial trading with no third party deciding on entry requirements.
The dApp sector is one of the crypto industry’s most lively, and TabTrader has the tools you need to get to grips with the deluge of tokens associated with it.
Check out the TabTrader app for mobile and web and start trading with over 20,000 instruments across more than 30 major crypto exchanges.
Want to find out more about cryptocurrency and blockchain? New to trading? Head to the TabTrader Academy — the go-to source for crypto and trading education.
