What Are Decentralized Apps (DApps) & Why Are They Used?

Technology has spoken: The world no longer needs middlemen. 

Thanks to decentralized apps, or DApps, you no longer have to go through a company or single authority to connect to people or the goods and services you need. Unlike conventional apps, DApps aren’t owned by a single entity, they never have downtime, and they cannot be shut off. This novel breed of application is quickly changing the app game and the world. 

Below, you’ll learn all about DApps, how they work, why you should use them, and some of the challenges this new type of app faces both now and in the days ahead.

What Are Decentralized Apps (DApps)?

Decentralized Apps (DApps) are open-source software applications designed to run on peer-to-peer (P2P) blockchain networks rather than centralized servers. DApps are similar to web apps, but they’re P2P-supported.

With Ethereum, decentralized finance (DeFi) and DApps becoming more and more popular, chances are that you’re wondering — like millions of others — what DApps are and what this new technology is all about. Essentially, DApps are applications just like any other, but instead of running on a single server, they run on decentralized P2P networks. This means there is no single central authority.

Since they’re built on the Ethereum platform and decentralized networks supported by distributed blockchain ledgers, DApps can be continually improved and built upon by others once the codebase has been released. This makes their control by a single authority virtually impossible.

The Ethereum blockchain network, smart contracts, and other distributed ledger technologies have helped popularize DApps. The use of blockchain allows DApps to process data and execute transactions through distributed networks.

DApps have been created for a variety of applications, ranging from gaming and social media to web browsing and DeFi. Unlike web-based apps, DApps are always accessible and are not exposed to any single point of failure.

Criteria of DApps

DApps are still in their nascent stage, so the specific definition of a DApp or the criteria needed to be considered a DApp isn’t something that can be explained in a single line. Nonetheless, in 2014, a report was released defining DApps. In it, DApps were defined as entities meeting the following four criteria:

Open Source

The first and most crucial criterion for a DApp is that its core source code must be available to everyone. It must be user-controlled and work without any third-party intervention, and no entity can own more than 50 percent of the tokens or coins issued. While it was created several years prior to Ethereum, which is the blockchain network most DApps are built on, Bitcoin is an excellent example of a DApp, as its code is open-source, it has no majority owner, and it’s governed by a proof of work consensus mechanism.

Decentralized Blockchain

As their name suggests, DApps use decentralized blockchains. In fact, to be considered a DApp, all information must be stored in an openly accessible blockchain to keep the app free of centralized authority and invulnerable to any central point of attack.

Incentivization 

Since DApps are based on decentralized blockchain networks, everyone who validates their records must be incentivized or rewarded with digital assets, such as cryptographic tokens. These tokens serve as payment to miners and stakers, who are necessary for the DApp’s continued operation and growth.

Protocol

A DApp must run according to a protocol, and the development community must agree on a proof of stake (PoS) or proof of work (PoW) cryptographic algorithm as a means of showing proof of value.

Under this definition and according to these criteria, many cryptocurrencies, like Bitcoin, can be considered DApps, even if in a rudimentary sense. In fact, even without the use of smart contracts, a blockchain in and of itself can be considered a DApp.

Like Bitcoin, blockchains can host DApps with their own blockchains. Or, like Ethereum-based blockchains, non-blockchain based DApps can be built on top of existing blockchains. If all of this starts to sound a bit confusing, just remember DApps and blockchains go hand-in-hand.

History of DApps

DApps may be getting a lot of shine these days, but they’re nothing new. In fact, for all of you younger millennials out there, you may be surprised to know that they even predate Bitcoin. That’s right; DApps have been around since the thought of blockchain technology was, well, just a thought.

If you were born post-1995, you may not have heard of some of the earliest decentralized applications. The most famous were Tor, BitTorrent (which was influential in the naming of Bitcoin), LimeWire, and the infamous Napster. However, back then, the term “DApp” didn’t exist. If it did, no one knew it, and it certainly wasn’t a part of everyday nomenclature like it is today.

It wasn’t until P2P file sharing, which preceded blockchain, that DApp usage really started taking off. Websites leveraging BitTorrent protocol, for example, are still widely used around the world today, despite always seeming to be in regulatory hot water.

The Present DApps

Today, however, DApps are mostly talked about in relation to blockchain, as many decentralized software startups utilize the technology’s native properties as foundations for their apps. By leveraging existing networks, there’s less need for development costs. Bitcoin and similar systems also allow for the distribution and tracking of native tokens given out to backers during project launches.

That said, as mentioned, decentralized applications have continued to evolve with blockchain technology, and most modern DApps are built on Ethereum, which many consider a second-generation blockchain. In addition to basic proof-of-work protocols for ledger management, these second-generation blockchains are layered with smart contract functionality to create a developer-friendly framework and ecosystem.

While Bitcoin was the world’s first blockchain, the once revolutionary technology has quickly evolved far past processing simple financial transactions. When Ethereum was proposed by Vitalik Buterin in 2013, his sights were set on something much bigger —a  decentralized world.

Buterin envisioned an internet based on blockchain, one where corporations didn’t have control, users did. To do so, Ethereum developed the now widely used smart contract. Essentially little more than automated if-then statements, these contracts are immutable and have rules and limitations built right into their code. This allows any party to transact without the need for an intermediary or centralized platform. This type of DApp is the one we know today.

How Do DApps Work?

A DApp is executed and stored on a blockchain network, commonly using Ethereum but now utilizing various tokens native to other networks as well. Cryptographic tokens are used to validate the app and are required to access the application.

In many ways, DApps are quite similar to conventional apps, as they both render web pages using the same front-end code. If you’re still wondering what DApps are, it’s the back-end code that makes them different, since they run on decentralized P2P networks.

While traditional applications are supported by centralized servers, DApps are supported by smart contracts stored on a blockchain. When it comes to using smart contract technology, the most popular blockchain to date is Ethereum, though competitors are numerous and proliferating.

A smart contract mediates transactions and enforces rules written into the code. While important, they only exist on the back end and make up just part of the complete DApp. Creating a DApp based on the use of a smart contract system requires combining a number of smart contracts for the back end. For the front end, third-party systems are used.

Smart contracts run on a ledger of data stored in blocks. Rather than being stored on a server in a central location, the blocks are dispersed across distributed locations. Each of the data blocks are linked and governed by cryptographic validation.

Using this decentralized blockchain as well as smart contract technology, DApps can be created and used for almost anything, including:

• Web browsing

• Social media

• Gaming

• Crypto wallets

• And much more!

Pros and Cons of DApps

DApps run on distributed systems and aren’t owned by a company or individual, giving them their own unique advantages. Of course, because technology is always changing, DApps are works in progress. Let’s go over their pros and cons.

Pros of DApps

More Secure Than Regular Web Apps

As you now know, DApps don’t rely on a central server. Because of this, they’re often regarded as being more secure than traditional centralized applications. Given the rampant security breaches taking place these days, anything you can do to secure your data should definitely be a priority.

Never Lose Data

Since DApps are hosted across expansive decentralized networks, there’s virtually no need to worry about data loss. If one of the blockchain’s nodes goes down, all of the other nodes pick up the slack to ensure your data remains in sync — and that you don’t miss a beat.

Data Is Cryptographically Encrypted

Each node of a blockchain syncs with the others to accurately track every action taking place within the network. This is how new transactions are verified. Would-be attackers must control a majority of the network’s computers for a successful intrusion, but even then, they must bypass cryptographic encryption.

While this alone isn’t impossible, it’s extremely difficult within a distributed, decentralized system. That being said, there’s no absolute guarantee of data safety these days, regardless of which type of app you’re using.

No Content Guidelines

Not only must conventional, centralized apps act according to their country’s laws and regulations, but they must also follow the Terms & Conditions they themselves arbitrarily set when deciding which content they should and shouldn’t publish.

DApps, on the other hand, have no central authority telling community developers and users what they can and cannot say, which transactions they can or cannot make, or even what blockchain data they can read.

Cost Efficiency

Centralized apps often have higher costs. For instance, applications like YouTube profit by taking a percentage of what their users earn from their video postings. Apps that are decentralized allow users to transact directly through the use of cryptocurrency. They are thus more financially efficient, and have no middlemen to cut into profits.

Less Downtime

With greater flexibility and more robust than centralized apps, due to their lack of connectivity to a single central server, DApps can run with minimal downtime and fewer interruptions for maximum resilience and continuity.

Faster Transactions

Executing global transactions takes place very quickly, as no third parties exist to approve each one. Since transaction approval is based on consensus algorithms within the network, expensive third parties can be eliminated and transactions can be executed much faster.

Cons of DApps

Difficult to Maintain

Having no central authority also means slower updates. Even fixing a minor bug requires majority consensus among every peer in the network. With this governance structure, it can take weeks and sometimes months before a problem can be fixed and an update made.

Network Effect

DApps also require a sizable user base in order to operate properly. The more users an app has, the more effective it will be in delivering its services. This is known as the network effect. Many newer DApps suffer from low user numbers, making them less interactive and diminishing the overall user experience.

Difficult KYC Process

Since DApp users aren’t required to provide their real identities when interacting with the apps, verifying the identities of customers can be challenging.

Possibility of Data Breaches

For starters, while these apps do away with the possibility of data breaches on centralized servers and data systems, their open-source nature does leave them vulnerable to hacks and scams. Since they’re open-source, hackers have opportunities to probe blockchains and their networks in search of weaknesses. The EasyFi exploit alone cost the ecosystem $80 million in 2021.

Fortunately, as decentralized app technology continues to expand and user bases grow, the industry is taking action to make hacking blockchain networks increasingly difficult. Some of the strategies currently being worked on include smart contract debugging, eliminating copy-and-paste errors, fixing faulty app logic and implementing regular audits.

While DApp creators are taking steps to fix these issues, as more and more DeFi projects hastily launch without proper funding and auditing protocols, the hacking problem persists.

Web Apps vs. DApps

The majority of apps today operate on centralized networks owned and maintained by a controlling authority. Streaming services, social media networks and financial institutions all hold your data on servers. When accessing these apps, their servers receive a request and they send the result back to you after validating your credentials. This generates enormous amounts of user data, which results in exposure to hacks, as well as big tech companies profiting from it.

DApps

These shortcomings have led to greater data security awareness and increased interest in blockchain technology. Decentralized by nature, blockchains eliminate the need for third-party intermediaries. Thanks to automated smart contract usage and shared consensus, Ethereum-based blockchains and apps can be completely decentralized, and function without Big Tech getting in the way.

For example, if you want to send some crypto to a friend using a DApp, all you have to do is log in to your personal crypto wallet, choose the amount to send, and then confirm the transaction. A smart contract then does the rest and completes the exchange. A permanent record of the transaction is created after being verified by blockchain validators.

Web Apps

Centralized web apps don’t work this way. When sending U.S. dollars to a friend using Venmo or another centralized web app, the process takes place on a centralized network, with a bank or other company handling every component of the transaction. Not only do they decide on the validity of the transaction, but they also own the data.

Everyone from Twitter to Trello uses web apps, but every single one consists of both a front end and a back end. For example, when you open up the Twitter app or access it on your web browser, the Twitter web server (back end) goes to work supplying data to the display feed (front end).

Web Apps vs. DApps: Further Considerations

While huge amounts of data are channeled through the internet via centralized servers, blockchains share the transactional burden with scores of machines over a distributed network. Both websites and DApps work similarly on the front end to render available pages viewable on the internet. On the back end, however, a DApp communicates with a large blockchain network via a wallet.

Your wallet is responsible for managing your blockchain address, as well as the cryptographic keys needed to verify your identity. If a DApp is Ethereum-based, a smart contract is used (rather than HTTP protocol) to communicate back and forth with the blockchain and carry out transactions.

The Future of DApps

Despite still being in its early stages, DApp technology is really taking off. Already, there are thousands of DApp solutions offering a vast array of services. From playing games to trading NFTs and investing in DeFi, you name it — and there’s a DApp for it.

Even more impressive, according to DappRadar, there are over two million unique daily DApp users. While this is impressive, there’s still a way to go before DApp usage outpaces that of traditional web apps.

In order for DApp usage to become more mainstream, DApp developers and the networks they’re built on must work through a lengthy list of challenges, including security and scalability. When they do, however, a new era of decentralization will dominate the app landscape.

Closing Thoughts

DApps are sprouting up everywhere and creating a new P2P economy free of centralized power and monopolistic companies. Just as varied as traditional web apps, they're used for everything from productivity and finance to games and entertainment. Most of these apps are hosted on the Ethereum blockchain, but as smart contract and blockchain technology in general continues to evolve, DApps stand poised to evolve right along with it.