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Decentralized Applications (DApps): A Complete Overview

Updated on :  

08 min read.

Decentralised applications or dApps are developing a new digital economy of peer-to-peer services which removes power from monopolistic organisations. Also, they eliminate the need for a middleman.

For instance, when you purchase a house with the help of brokers, you pay hefty sums to them. Suppose if real-estate transfer shifts to dApps, there won’t be a requirement of any middlemen, and the process will only involve the buyer and seller. 

With all this in context, it seems that dApps are worth looking at. Let’s find out more about this.

What are dApps?

dApps are digital programs or applications which run and exist on a peer-to-peer (P2P) network of computers or a blockchain rather than a single computer. 

These applications are often developed on the Ethereum platform and stay outside the control and purview of a single authority. Notably, dApps can be created for social media, gaming and finance purposes.

In simpler terms, dApps are similar to digital apps found on any laptop or smartphone, with an added feature – employing blockchain technology to keep users’ data out of the control of organisations behind it. 

Working of dApps

Decentralised applications are executed and stored on a blockchain system, commonly using Ethereum. Cryptographic tokens are necessary to access the application. These tokens help validate the app.

Like conventional apps, dApps render a web page using the same front-end code. However, the back-end code of dApps is different because they run on a decentralised P2P network. This makes these applications free from a single authority’s control.

A centralised database and servers support a traditional application. On the other hand, smart contracts stored on a blockchain support dApps. The most popular blockchain for running smart contracts is Ethereum. 

A smart contract comprises only the back-end. Also, it often forms only a small portion of the entire dApp. That is why developing a dApp on a smart contract system needs employing third-party systems for the front-end and combining many smart contracts.

All decentralised apps do not work on standard web browsers. Some only work on web portals with the customised code to open that application.

Difference between a centralised and decentralised app

A single organisation owns a centralised app. The application software for such an app resides on one or more servers that the company controls. A user can interact with the app by downloading a copy and sending and receiving data back and forth from the organisation’s server.

On the other hand, a dApp operates on a peer-to-peer network of computers or blockchain. Instead of relying on a central authority, a dApp allows users to engage in transactions with each other directly. 

A decentralised app’s user will pay an amount of crypto to the developer to download and use the program’s source code. This source code is a smart contract that enables users to complete transactions without sharing personal details.

Examples of dApps

  • Factom

Factom is a decentralised platform that is based on the Bitcoin blockchain. It allows secure storage of digital proofs for integrity solutions and data provenance without requiring trusted intermediaries or disclosing private data. The US Department of Homeland Security is one of the users of Factom.

  • Augur 

Built on the Ethereum blockchain, Augur is a decentralised platform designed to develop event prediction markets. You can bet on an event’s outcome to receive a reward. The results which are least likely to happen bring in more rewards if they come true.

  • Golem

Golem is a decentralised platform which offers an infrastructure to develop a global market for computing power. It allows users to sell or buy computing power globally. Golem is a decentralised, open-source supercomputer that anyone can access. 

Advantages of dApps

  • Flexible platform

The Ethereum blockchain offers adequate flexibility to quickly develop decentralised apps for different industries.

  • Fault tolerance

If a single node in a decentralised network is still working, the network can stay available, even though performance can be extremely downgraded. As no centralised network exists, a hacker will not be able to attack a good network of nodes to take down a dApp.

  • User privacy

Users need not submit their personal information to decentralised apps to use an app-specific functionality.

  • Data integrity

The blockchain consensus algorithms ensure that data stored in the blockchain is resistant to change. That’s why this stored data is secure and immutable.

Drawbacks of dApps

  • Hard to scale

In comparison to centralised networks, decentralised networks are harder to scale.

  • User experience

Decentralised apps do not function in the same manner as centralised apps. That is why it can be more challenging for developers to develop a user-friendly end-user experience. Instead of a username and password, users need a private and public key to log in.

  • Network congestion

If a decentralised app uses many resources, it will back up the entire network.

  • Maintenance

It isn’t easy to debug, update and maintain decentralised apps. This is because all fixes need the consensus of every peer in the blockchain-based network.

dApps: Scams and hacks

Decentralised apps can be vulnerable to hacks. As per DappRadar, around $1.2 billion was stolen in exploits and hacks in Q1 2022 alone. In August last year, Poly Network got exploited for $611 million, and in March 2022, the Ronin bridge of Axie Infinity was hacked for $552 million.

Hackers have implemented several techniques to target dApps. This includes attacks on the cross-chain bridges, which allow users to transfer funds across various blockchains. Not to forget the DeFi flash loan exploits as well. 

Besides these, some attacks have relied on old-fashioned social engineering. The Bitcoin-to-DeFi bridge Badger DAO suffered a loss of $120 million in December last year because scammers conned DAO members into approving malicious transactions.

Closing thoughts

Decentralised apps are in their early stages till now. But again, several dApps already provide multiple services – investing in DeFi, playing games, trading NFTs.

By the first quarter of 2022, there were roughly 2.4 million daily active dApp users. But there is still a long way to go. There is a long list of challenges for developers and the networks on which they create dApps. These include security, UX and scalability. 

Once they work through these challenges, the dawn of dApps will be upon us.