What Are DApps? And Why You Should Care
Ever wonder why you use centralized services such as Airbnb? Airbnb is a great example of a middleman who takes a cut and makes a profit by providing an aggregation of users’ offers.
But why do we need platforms such as Airbnb? Why not have a platform that doesn’t take a cut? Well, that’s the promise of decentralized applications (also referred to as DApps).
This article gives you an in-depth explainer of what DApps are, how they work, and which challenges they face.
What are DApps?
Decentralized applications operate as any normal application. They contain business logic that forms the core of the service they offer. Therefore, each DApp offers a service just like a centralized application.
However, the key difference lies in the way we run DApps. Decentralized applications are supported by a peer-to-peer network, most often by a blockchain platform. This means that every participant - computer - in the network runs the same software and also hosts the same decentralized applications. This is a requirement as every computer in the network needs to be able to verify transactions sent to those DApps. Without hosting the logic for the DApp, a computer can’t validate a transaction sent to a DApp.
But why does it matter that an application is served from a peer-to-peer network? A peer-to-peer network such as blockchain technology offers the following benefits.
Benefits of DApps
1. No defined owner
First of all, a decentralized application has no defined owner. Nobody can tamper the code once it has been deployed to the blockchain network. This drastically improves trust in the application as you know the code will always operate in the same, predictable way. It’s not possible to modify the code to gain an unfair advantage.
2. Code transparency through Open Source development
You might wonder why we should trust the developer of a decentralized application. Who knows an extra line of code got added to provide the developer with an unfair advantage.
However, this scenario is highly unlikely as the code is Open Source and can be audited by anyone. In addition, most crypto projects have been a joint effort among many developers. This decreases the likelihood of someone tampering the code as the other developers would notice the malicious change.
However, code transparency doesn’t guarantee that the code is bug-free. Developers still find exploits for existing DApps as the technology for developing DApps continues to evolve. Luckily, DApp exploits aren’t a frequent event.
3. Resistant to censorship
A key benefit of decentralized applications is that nobody controls or owns the underlying blockchain that hosts the DApp. Anyone can publish new DApps. Due to the tamperproof nature of blockchain technology, it’s impossible to remove a DApp after it has been published to the network.
Imagine a news reporter who’s active in a country with little press freedom. Such a reporter could make use of a decentralized application that provides blogging services. For example, the reporter might publish their blog on the blockchain platform so it can’t be taken down by repressive authorities.
However, the “resistant to censorship” characteristic can also be abused. For example, the technology allows criminals to operate a gun marketplace matching buyers with sellers.
Although the possible negative outcomes of censorship-resistance, it’s a strong benefit for decentralized applications.
4. 100% Uptime
Theoretically, a blockchain offers 100% uptime unless the blockchain itself stops to exist due to various reasons. At its core, a peer-to-peer network ensures that DApps remain accessible even when some computers (referred to as nodes) in the network go down.
In essence, a peer-to-peer network such as a blockchain platform consists of many computers all running the same software while being connected to each other. It doesn't matter if one or multiple nodes are removed from the network.
What are the challenges for DApps?
Now we have a better understanding of what are DApps, let’s learn about its challenges. DApps promise many great things, however, they still face a couple of challenges:
- Hacks: As said before, developers continue to find problems in Open Source smart contracts that power DApps. As the language for developing smart contracts evolves, new threats are found that affect existing DApps.
- Poor user experience: A poor user experience (UX) can be contributed to the fact that blockchain technology is still new for many users. In addition, it’s a tough challenge to make the user interface that interacts with a DApp as user-friendly as possible. However, many companies have already invested heavily in providing an intuitive user experience while hiding most of the underlying blockchain interactions.
- Adoption: The adoption of DApps is still a wide-spread problem. Many DApps can be very successful as they cut out the middleman and save the user time or money. However, most DApps suffer from a low number of users. For example, a DApp that offers similar matching services between renters and tenants such as Airbnb. If few users use the Airbnb DApp, it becomes basically useless as the value lies in the aggregation of a huge number of user offers. A DApp that can only offer a couple of rental homes won’t be an attractive alternative for users looking for a vacation home.
- Regulatory compliance: Some DApps provide great alternatives to centralized services, however, they have their own problems with regulatory compliance. Many regulatory questions are still debated within the blockchain space. For example, what happens if users lose money when a DApp is hacked? At the moment, the user has to accept the risk of losing all of its money that lived within a particular DApp. It’s definitely a difficult question to answer. New initiatives such as Opyn have sprouted that try to provide insurance services for money that lives within DApps.
Where to find DApps?
Many DApp listing websites can be found through Google. A great place to start is State of the DApps. They provide an overview of 3118 DApps at the time of writing. Further, DappRadar offers a comprehensive overview of the currently most popular DApps.
Most common DApp Platforms
You might wonder where you can find all of those DApps. Many blockchain platforms exist that offer smart contract capabilities to develop DApps. Here’s a list of the most common platforms:
Currently, Ethereum is the most popular platform as it hosts 2,878 DApps according to State of the DApps. The total 24h volume exceeds $71 million among 113.000 transactions. Gambling, games, and finance are the top three categories for DApps.
The Future of DApps
The number of DApps is predicted to grow in the future. Especially financial DApps are seeing a great uprise in usage. The industry segment responsible for this uprising is decentralized finance (DeFi). Many new DeFi applications have been created that provide larger capital gains than traditional finance.
For example, many borrowing and lending platforms exist that cut out the middleman. Therefore, matching borrowers and lenders directly with each other. Any regular user can provide a loan and earn interest on the lent amount. Users can earn up to 12% interest yearly via peer-to-peer crypto lending. The high return rate made the decentralized finance space so attractive for many young adults that are unable to grow their capital through traditional savings accounts.
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