You use a multitude of apps every day. From social media apps to ride-sharing apps- there is an application for everything. These apps are run by a central authority and act as middlemen between users. But what if there was an app that directly connected users? What about a ride-sharing app where riders and drivers can directly engage with each other?
This is what dApps aim to achieve. Decentralized Applications are one of the most important and popular use cases of blockchain technology. These are apps that are not controlled by a central authority and instead run on a peer-to-peer network.
dApps are designed to be censorship-resistant applications, have little to no downtime, and cannot be shut down by some powerful individuals. While many dApps have been coming up left, right, and center, the technology is still in an experimental phase and struggles with many limitations.
This article will give you an overview of dApps, how it works, what dApps are used for, and what dApps are designed to do.
What are Decentralized Applications(dApps)?
Simply put, dApps are open-source applications that run on a decentralized peer-to-peer network. To eliminate intermediaries, most dApps use smart contracts that are automatically executed once certain pre-determined conditions are met. Though there are other options available, Ethereum remains the most popular blockchain to build such dApps.
Most dApps have a cryptographic token that is used to secure the network and functions as an incentive for users to support the ecosystem. As decisions are implemented with majority consensus on dApps, these tokens help users participate in the platform’s governance.
How Do DApps Work?
A dApp’s backend code runs on a peer-to-peer network instead of centralized servers. The frontend code, however, is similar to centralized apps and can be in any language.
dApps can be constructed on several blockchains but Ethereum remains the choice of most developers due to its vast ecosystem and pioneering role in popularizing smart contracts.
Smart contracts define rules for transacting on the app, enforce these rules, and mediate transactions. Since dApps are pretty much controlled by these smart contracts, the latter have to be carefully designed and include very possible detail for every possible scenario on the platform.
The blockchain here functions as a ledger where all the data is recorded and stored. This record is immutable and cannot be altered once it has been stored on the blockchain. As dApps use peer-to-peer networks, these blocks of data are geographically dispersed. Cryptographic validation helps in linking these scattered blocks.
Ideally, dApps are supposed to be open-source, community-governed platforms with data and records that are publicly available. However, as dApps have become popular and their user base has swelled, some of them may not adhere to all the features required of a dApp.
What are dApps Used For?
dApps have been developed primarily to eliminate the role of intermediaries and hence, have a variety of uses in various fields.
dApps can be used for facilitating peer-to-peer financial transactions. Such transactions require no middlemen and the transfer of assets or currencies is directly conducted by the two parties. Decentralized exchanges such as UniSwap can be considered an example of such financial dApps.
dApps also play an important role in the process of identity verification. They can be used for establishing and confirming the identity of people for say, passport or voter applications. dApps also come in handy for securely storing personal information.
Instead of paying commissions to brokers, dApps can be leveraged for buying and selling real estate directly between the buyer and the seller. Title deeds and ownership documents can also be stored and tracked with the help of dApps.
Supply Chain Management
Logistics and supply chain management can majorly benefit from the adoption of dApps. Blockchain and the dApps developed on them can easily be used to plug the information gaps and improve supply chain management. These apps can track the movement of goods through various steps of the supply chain thus, providing greater transparency and accountability.
Many places are now digitizing the health records of patients. As this is sensitive information, dApps can be utilized for securely storing the medical information of patients. dApps will also help healthcare professionals communicate and collaborate more efficiently.
Centralized social media platforms come with their own set of problems. The downfall of X(formerly Twitter) is the most egregious example. Hence, dApps can be used for developing social media platforms where users can freely interact and share content without being dependent on the whims of a central authority.
Advantages of dApps
Considering that centralized apps are essentially data mining wells, dApps aim to give the utmost priority to user privacy. While this is their main goal, dApps have many other advantages such as:
Resistance to Censorship
It is way more difficult for an individual or an organization to control the network and the content that is shared on it in the absence of a single point of control or failure. dApps, therefore, promote free speech and don’t let users be riddled with censorship.
dApps don’t need the personal information of users to provide services. They rely on smart contracts to execute transactions between parties. In this way, they eliminate the need for a central authority. Thus, dApps are in a better position to protect user privacy as compared to centralized applications.
As dApps are developed using blockchain technology, their data records are tamper-proof and immutable. They are more secure in the face of hacking and other sabotage attempts. Further, users can easily access information on dApps to check the veracity of a transaction or any other recorded information.
dApps function based on a decentralized peer-to-peer system. This ensures that even if individual nodes go down, the network is still able to function. The performance may be affected but the network is still available.
Disadvantages of dApps
dApps are still an emerging technology and have many weaknesses that may hinder their development and greater adoption.
In the present scenario, scaling up is quite hard for a dApp. There is a significant performance overhead and even though Ethereum has shifted to proof-of-stake mechanism, the latter still takes a lot of time. Any app requiring significant computational resources can overload a network causing network congestion.
Traditional centralized apps have very user-friendly interfaces that make users want to interact with them. dApps, meanwhile, do not have the best user interfaces which drives away potential users. On one hand, creating an end-user experience that is able to rival established centralized apps is in itself a challenge.
On the other side, the average user may also not be able to effectively set up the tool stack needed to securely interact with a blockchain.
Once a dApp is deployed, it will more than likely need modifications and upgrades sometime in the future. Addressing bugs and other security risks in a dApp is a harder task as it is more difficult to modify the code and data published on the blockchain.
Simply put, dApps need a reasonable user base to properly operate. They need nodes and users and since most dApps have a small user base, it makes them less interactive. A small user base can also make a dApp less secure since it relies on a peer-to-peer consensus mechanism for verifying and securing data.
What are dApps’ Examples?
The popular decentralized exchange UniSwap is an example of a successful dApp. It is a peer-to-peer platform that enables users to swap tokens by directly engaging with each other instead of relying on a central authority. Like most dApps, UniSwap has also been developed on Ethereum.
It is an entertainment app where users can use cryptocurrency to buy kitties. They can then breed, trade, and sell these kitties. CryptoKitties is one of the first blockchain games where each CryptoKitty is unique and represented by an NFT.
OpenSea is the largest NFT marketplace and a pioneer in this field. A platform first developed on Ethereum, it later integrated with Polygon as well to minimize transaction costs. OpenSea is home to some of the most popular NFT collections such as the Bored Ape Yacht Club and Crypto Punks. It has 200+ NFT categories, over 1 million active users, and supports more than 150 cryptocurrencies.
Audius is a music streaming platform like Spotify or Apple Music. However, the unique thing about Audius is that it lets creators mint NFTs of their music. It has a native token called AUDIO which is used to pay artists associated with the platform. Similarly, users can directly pay for the NFTs with AUDIO tokens.
Aave is an open-source liquidity protocol. Here, users can lend and borrow as well as stake and earn interest on deposits. As it is a dApp, lenders and borrowers don’t need to submit their personal information and can enjoy total anonymity. Using its native token AAVE, users can also participate in decision-making on the Aave platform.
It is a credit service dApp developed on Ethereum. Here, users can lock their ETH as collateral. They then receive DAI tokens in return. As DAI is a stablecoin, it allows users to quickly swap assets and access credit services at a minimal cost.
dApp Scams and Hacks
While dApps are considered more secure and privacy-friendly than centralized apps, they are not immune from hacking attempts and other attacks. For example, DappRadar reports that dApps lost about $1.2 billion in various hacks and exploits in just the first quarter of 2022.
Apart from this, there are various other scams common on dApps that aim to con users out of their money.
Developers launch fake Initial Coin Offerings(ICOs) to raise funds for developing a new dApp or cryptocurrency. However, they have no intention of creating anything and simply disappear after the funds have been raised.
Users are tricked by using fake websites or emails that closely imitate their real counterparts. These fake platforms trick people into revealing their sensitive information which can then be used to steal their funds or for other nefarious actions.
Malware or Viruses
Some hackers rely on the good old method of infecting the users’ devices with malware to steal their personal information. As these apps are decentralized, it can be very difficult to track and find the perpetrators.
Flash Loan Vulnerabilities
Exploiting the vulnerabilities in the flash loan feature of DeFi apps is a common technique among hackers. They may also attack cross-chain bridges that are used to transfer funds between different blockchains.
dApps are applications that run on a decentralized network rather than being reliant on a single centralized server. Blockchain technology and cryptocurrency have played a crucial role in the development of dApps.
These apps promise a world that is free from censorship, values transparency and privacy and allows users to directly interact with each other or the application.
dApps have a variety of use cases and they have been slowly entering domains dominated by giant centralized apps. However, dApps are still in the experimental phase and hence, face many problems. Scams and other types of attacks are common on dApps.
While they have the potential to disrupt traditional industries, dApps also have multiple issues they need to address before they can take on the industry giants.