What Are Dapps?
What is an application? This is a program that allows a person to perform certain actions on a certain device. There are desktop applications – programs for computers. There are mobile applications – programs for smartphones, tablets, mobile phones. Less common are programs for other devices.
Most apps are developed by certain companies: Microsoft, Google or lesser known, developing only one program. Companies not only develop, but provide full support and operation of their products. If the company disappears, the app also stops working immediately or soon. These are centralized applications that cannot exist without their "center".
The principle of operation of decentralized applications is strictly opposite. Dapps are primarily distinguished by the fact that no individual or entity controls the operation of the application and the network on which it runs. In addition, decentralized utilities follow the principles of transparency: developers publish code in the public domain, allowing other independent developers to read it, audit, fix bugs and suggest improvements.
Decentralized programs are controlled by the algorithm described in the smart contract. This eliminates intermediaries, but imposes responsibility on developers, so the contract must be carefully checked and tested before launching the application. In a dapp, cryptocurrency plays a central role: users pay for transactions with it and receive rewards for certain actions.
All dapp cryptos run on the blockchain: the decentralized network itself is a database that stores information about transactions and does not perform any functions. Decentralized applications allow you to add functionality for users to interact with different services on the blockchain.
What Are The Key Characteristics of Dapps Crypto?
What are dapps main features? In terms of interface, dapps and regular applications may not differ in any way. The differences lie in how the programs work and the code is executed.
Dapps applications do not depend on the environment in which they are executed. This means that decentralized applications are deterministic, unlike centralized ones. Let's look at a few features of dapps that distinguish them from a traditional utility.
One of the main features of dapps is that they run on a decentralized network using blockchain technology and do not have a single point of failure. “Regular” centralized applications store data on centralized servers, which leads to the risk of information leakage.
Centralized (“regular”) applications are managed by companies that set the rules and dispose of the data as they see fit.
Blockchain application code (dapp) runs on a decentralized network, not on company servers. In a peer-to-peer network (peer-to-peer or P2P), all participants have equal rights and decide how to manage their data and assets. The application only synchronizes with a network of computer nodes.
If the company's servers stop working, the code will not be executed and the application will become inaccessible to users. Dapps will continue to work even if one or more serving nodes fail. Attackers will not be able to carry out Denial of Service (DDoS) attacks.
When you use an application, such as mobile banking applications, you pay intermediaries for the services provided. Decentralized applications are Turing-complete, which means that an application can execute user commands using a smart contract if it supports such functions.
Another problem with centralized applications is that the client and server are interconnected and dependent on each other. If the backend code on the server is hacked, the client side will also suffer, which makes centralized applications vulnerable to hacks. In a decentralized web, applications are isolated from the main blockchain.
What Is The Origin of Dapps?
What is dapps’ origin? Blockchain works according to the principle of decentralization. It can be said that the first dapp on the crypto market was Bitcoin, or rather, Satoshi Nakamoto's program, which provided mining, address generation, creation and forwarding of transactions, and the general functioning of the currency.
Decentralization was declared by Nakamoto as one of the main advantages of cryptocurrencies, so it is natural that the developers who supported the technology also retained this principle of operation in their products.
The creation of Ethereum, a platform for developing decentralized applications, contributed to the widespread adoption of both dapps and cryptocurrencies in general. If before the advent of Ethereum, a developer had to write his application from scratch, then with the advent of the platform, anyone got the opportunity to create it for their needs without special knowledge. This ensured the popularity of Ethereum as a cryptocurrency.
Ethereum is primarily a platform for running smart contracts and decentralized applications. Vitalik Buterin opened the blockchain source code, so anyone can explore its capabilities. Moreover, after one of the forks, users began to take part in improving the system.
On the Ethereum network, you can transfer ETH coins to other participants directly without an intermediary in the form of a bank. But, besides this, you can develop on it: other tokens of the ERC-20 standard; cryptocurrencies pegged to fiat currencies; applications that work without being tied to a central server; tools for decentralized finance (DeFi); exchange-traded funds (ETFs); unique NFT tokens.
For dapps, Ethereum became the first blockchain network that opened up the possibility of creating decentralized applications running on smart contracts. The popularity of dapp cryptos on the Ethereum blockchain is due to the following factors:
There is no centralized application management.
There’s no administrator who can remove programs from the server.
Even if the developer stops supporting it, the program continues to work.
Applications are protected by cryptographic keys. This guarantees protection against theft of users' personal data, as well as their payment information.
Applications already have built-in tools for making payments using ETH or internal tokens. That is, there is no need to connect third-party tools and pay additional fees. Thanks to the distributed ledger, there is no technical possibility to prohibit access to the application for one user or users living in a particular country.
All Ethereum dapps crypto are created and operate on the same platform. Due to this, they are compatible with each other, and can also exchange data. For example, if you create a game item using NFT, it can be used in one game (or several) and sold on another platform.
Dapp cryptos on Ethereum allow you to play, collect art, sell and buy things, and participate in gambling. The list of available programs is growing almost daily.
What Are Different Types of Dapps?
What are dapps’ types? So, the developers responded to the creation of a platform for dapps. Some were inspired by the idea of decentralization, others were interested in blockchain technologies, and others were interested in the financial component. This is how several types of dapps appeared on the crypto market:
Financial. These are applications that were developed for the sake of creating a cryptocurrency. In some cases, this crypto was superior to others in certain parameters – for example, it allowed for maximum anonymity of transactions compared to others. In some cases, just a fork was created to make money on investors.
Infrastructural. These are dapps that facilitated the use of blockchain technologies, solved a certain cryptocurrency problem, contributed to the spread of cryptocurrencies among ordinary users, made it easier to invest, trade, get news and so on.
Alternative. These are dapp cryptos that were created as decentralized alternatives to centralized applications with the same functions. For example, cloud storage, applications for protecting user data, and others. The token in them played the role of an internal currency or was a means for the initial monetization of the project, but was not required in the application itself.
Naturally, not all applications created on the Ethereum platform or other platforms can be called decentralized. Often they have a specific center that ensures their functioning. Without the center, they will only have a token that can be used decentralized, but which will be useless apart from the application and the center.
To make it easier for users to find and use dapps, and learn about them, special marketplaces appear, where various applications are assembled in the likeness of well-known mobile app stores. Moreover, dapps marketplaces are starting to integrate even into cryptocurrency wallets.
After Ethereum, other platforms for creating dapps cryptos appeared at different times. At first, the developers preferred the proven Ethereum, but soon they began to switch to alternative ones. Today, Ethereum, despite the popularity of its cryptocurrency, is not the most popular platform for Dapps among developers.
What makes developers choose other platforms, and users choose dapps based on them? Users want maximum performance, protection, convenience and reliability. Developers are also guided by these criteria. Almost every platform has its advantages, so developers, when choosing a platform, are guided by what is important to them and what plays a significant role for users of their application.
For example, if a developer creates a financial dapp, then the token model, distribution principle, mining speed, mining consensus resource, and so on will be important to him. If he creates an infrastructure application in the field of security, he will pay attention to the interaction model of smart contracts, to the number of nodes that are required to close the block.
The speed of block formation, the division of resources – all this has its own significance for a particular development. There are many options, and everyone chooses the platform that offers the most convenient dapps basic features.
What Is Dapps Scope?
Any user can buy a lot by making their own bid, or issue their own NFT and sell it at auction to other participants.
The problem with centralized marketplaces is that it is impossible to reliably determine who made the product and what quality it has. Sellers can cheat by fake reviews. And it is impossible to determine whether the author of the review actually bought and used the product. Blockchain can eliminate this problem as transactions are easy to trace.
Now the Play2Earn trend is actively gaining popularity. Users can play games while earning tokens for various achievements, such as winning duels or leveling up characters.
The first popular game was CryptoKitties, launched at the end of 2017 on the Ethereum blockchain.The game became so popular that it led to a critical network load, setting a record for the most daily transactions.
This type of decentralized application provides access to financial services to any users around the world. Users can easily exchange assets and add assets to liquidity pools, earning income from exchanges on DEXes. Moreover, for this you do not need to create an account, as is done in traditional banks and exchanges: you just need to connect a crypto wallet and you can make transactions.
Banks and other centralized organizations store customer personal data on their servers, which raises the risk of leakage. It is known about data leaks of users of such services: the data of millions of users has irretrievably been in the public domain.
Blockchain applications allow you to securely store sensitive information, and users can decide for themselves what information to provide.
What Are Dapps Disadvantages?
Smart contract flaws or discovered backdoors can lead to loss of funds.It makes sense to use a separate wallet for working with dapps and DeFi applications. In the event that one of the protocols is hacked and the funds are stolen from the wallet, then the assets in other wallets will remain safe.
Centralization Points and Risks of Hacking
Despite the fact that DApps are decentralized, smart contracts can serve as a point of failure for applications: if a vulnerability is found in them, this will affect the operation of the application. One of the most famous examples is the hack of The DAO platform on the Ethereum blockchain, when millions of dollars were stolen.
How Does the Development of Dapps Affect the Cryptocurrency Market?
Dapps crypto have a significant market appeal due to the possibility of monetization. There are several options:
ICO and other ways of initial distribution of pre-issued coins among investors;
performing certain actions within the application for tokens that are issued in parallel in the application itself or released before the launch of dapp in full.
The more popular, attractive and convenient dapp is, the more users it will have, the more actively its token will be used and the more expensive it will be on the market. This, in turn, will attract new users, and the application will develop immediately due to several factors:
demand (be it a demanded cryptocurrency, an element of infrastructure or an alternative to a centralized application);
investment attractiveness of the token;
decentralization, which provides the application with additional security and reliability in the eyes of the user.
The combination of these factors today ensures the active development of the dapps market in the crypto industry.
Centralized applications in the field of blockchain technology, which is based on decentralization initially, do not arouse such interest among crypto users as decentralized ones.
In addition, the reputation of centralized applications in the crypto market has been damaged by a large number of scams. The history of cryptocurrencies remembers many cases of creating centralized wallets, exchanges and other applications that appropriated part of the users' money.
Dapps are not 100% secure from theft, but it is much more difficult to implement a fraudulent scheme in them, because they are, by definition, unregulated and verifiable, that is, they are not subordinate to anyone in particular and are open source.
At the same time, in terms of demand and investment attractiveness, dapps are comparable to centralized applications. Thus, according to the totality of all criteria, they are superior to centralized applications due to higher security and reliability.
What is dapps meaning for the industry? With the emergence of new platforms for creating dapps, the likelihood of their active distribution in the future is very high. It is possible that in the long run dapps tokens will occupy the main part of the market. The trend towards the use of horizontally operating networks is already observed even outside the crypto industry, and in the crypto industry – as an industry aimed at decentralization from the very beginning – it manifests itself to the maximum.