What is a DApp (De­cen­tral­ized Ap­pli­ca­tion)?

A DApp is a de­cen­tral­ized, open-source ap­pli­ca­tion that operates on a blockchain and uses cryp­to­graph­ic tokens for trans­ac­tions. Unlike pro­pri­etary apps that are owned by a company and managed by central servers, DApps use a fail-safe peer-to-peer network. They’re also expected to play a central role in the de­vel­op­ment of a blockchain-based, de­cen­tral­ized Web3 Internet.

A closer look at DApps

The term DApp stands for “de­cen­tral­ized ap­pli­ca­tion”. DApps are au­tonomous ap­pli­ca­tions that don’t depend on company servers but instead use a de­cen­tral­ized peer-to-peer network. The storage of data, com­mu­ni­ca­tions, and trans­ac­tions is based on a blockchain. In addition, DApps use trans­par­ent, open-source code that can usually be viewed by users and be used free of charge.

What makes DApps special?

To be con­sid­ered a de­cen­tral­ized ap­pli­ca­tion, DApps must meet the following con­di­tions:

• Uses open-source code
• Based on a blockchain
• Uses cryp­to­graph­i­cal­ly encrypted tokens
• Enables the gen­er­a­tion of tokens

Let’s take a closer look at the four key char­ac­ter­is­tics of de­cen­tral­ized apps:

Open-source code

DApps are based on the open-source principle. The software uses an open-source code for­mu­lat­ed in a specific pro­gram­ming language that is visible to third parties, freely usable, and mod­i­fi­able. Changes to the open-source code of a DApp is not dependent on companies or ad­min­is­tra­tors.

A coun­terex­am­ple are idio­syn­crat­ic changes to the layout and func­tion­al­i­ty of Instagram, which regularly lead to user protests. DApps are based on a more de­mo­c­ra­t­ic principle and adapt to community-suggested changes, market de­vel­op­ments, and a consensus among de­vel­op­ers.

With the success of cryp­tocur­ren­cies, it became apparent that many de­cen­tral­ized apps didn’t rely on open-source code but instead on pro­pri­etary code. In 2019, only 15 percent of available DApps proved to be open source, while a quarter of all DApps used pro­pri­etary source code.

Blockchain

The storage of source code, trans­ac­tion data, and logs in de­cen­tral­ized apps are based on a blockchain. Blockchains use de­cen­tral­ized peer-to-peer computer networks dis­trib­uted around the world. In contrast to centrally managed apps like WhatsApp or Telegram, there’s a lower risk of hacks and outages since user data isn’t stored on dedicated corporate servers.

DApps offer higher security because attacking a blockchain network means targeting its in­di­vid­ual computers to break the cryp­to­graph­ic en­cryp­tion. This is almost im­pos­si­ble with a DApp, because computers are networked together.

Cryp­to­graph­ic tokens

Cryp­to­graph­ic tokens are linked to the de­cen­tral­ized, encrypted blockchain. Tokens are digital, encrypted copies of data that are stored in the blockchain. Among others, tokens can be cryp­tocur­ren­cies like Bitcoin in the Bitcoin blockchain. These can be used to instigate trades or generate and verify new tokens through mining.

Generated or exchanged tokens are stored with trans­ac­tion data as a digital copy or forgery-proof trans­ac­tion cer­tifi­cate in the blockchain. On the one hand, this prevents fraud and hacks. On the other, it makes ad­min­is­tra­tion un­nec­es­sary. Ver­i­fi­ca­tion takes place in a de­cen­tral­ized peer-to-peer network of miners and not via a central, hi­er­ar­chi­cal ad­min­is­tra­tor.

Token gen­er­a­tion

To use a DApp and exchange, buy, or sell tokens, DApps must generate cryp­to­graph­ic tokens. In the Bitcoin or Ethereum blockchain, a proof-of-work algorithm is used for this. Bitcoin, for example, uses an SHA-256 algorithm. The com­bi­na­tion of an algorithm, cryp­to­min­ing, and hashing, i.e., the gen­er­a­tion and ver­i­fi­ca­tion of tokens by solving a hash function, DApps fulfill the token gen­er­a­tion criterion.

What dif­fer­en­ti­ates DApps from other apps?

These are the main dif­fer­ences between DApps and cen­tral­ized apps:

• Unlike apps, DApps aren’t managed as pro­pri­etary software by a central entity such as a company or system ad­min­is­tra­tors.
• The source code of DApps is usually open source, publicly visible, free to use, and mod­i­fi­able.
• System and user data isn’t stored, shared, processed, and edited in company-owned servers, but in de­cen­tral­ized, globally dis­trib­uted peer-to-peer networks.
• The basis of DApps is a de­cen­tral­ized backend, managed by users in a blockchain network.
• Com­mu­ni­ca­tion in DApps doesn’t happen via the provider’s servers, but via a globally dis­trib­uted, de­cen­tral­ized network of devices and servers.
• Trans­ac­tions are encrypted in a blockchain and verified and doc­u­ment­ed using smart contracts.

Smart contracts and DApps

Smart contracts are another important part of DApps in the backend code of the blockchain. This refers to code that functions like a contract and enables verified, official token trans­ac­tions between DApp users. Once users meet the terms of the smart contract, the program code for a trans­ac­tion is executed and stored in the blockchain. Since smart contracts can’t be changed or ma­nip­u­lat­ed, they enable trans­par­ent, tamper-proof trans­ac­tions.

A smart contract’s terms and con­di­tions state what fees blockchain miners receive for executing and verifying trans­ac­tions. Smart contracts are often written in the object-oriented pro­gram­ming language Solidity. Although multiple smart contracts can be used for DApps, more than 75% of current DApps use only one smart contract at a time (as of September 2022).

What are the pros and cons of DApps?

What are DApps ap­pli­ca­tion areas?

DApps are an important part of Web3. Web3 is a new gen­er­a­tion of Internet that is building a future based on blockchains and de­cen­tral­ized networks. And they already play an important role in trans­ac­tions within de­cen­tral­ized networks. The de­vel­op­ment and ap­pli­ca­tion of DApps is boosted by users’ self-pro­gram­ming with blockchain and pro­gram­ming skills.

Possible areas of ap­pli­ca­tion include, among others:

• Finance: DApps promote de­cen­tral­ized financial trans­ac­tions and trading that doesn’t require financial in­sti­tu­tions as in­ter­me­di­aries. Instead, monetary protocols for trans­ac­tions are used. Possible ap­pli­ca­tions include loans, bonds, in­vest­ments, barter trans­ac­tions, and auctions.
• Gaming and NFTs: Various gaming DApps enable trades and “games” with an NFT. You can use these to earn money with NFTs by creating, col­lect­ing, trading or betting with them.
• Browser: DApp browsers connect to de­cen­tral­ized apps, let you browse DApps over blockchain networks, and provide an in­te­grat­ed wallet for crypto payments.
• Social networks: De­cen­tral­ized social networks like Leeroy are an al­ter­na­tive to cen­tral­ized social media companies like Meta or Twitter, which have ques­tion­able privacy cre­den­tials.

DApps in practice

Well-known DApps with large com­mu­ni­ties include:

• Rarible: Rarible is a de­cen­tral­ized ap­pli­ca­tion that acts as an NFT mar­ket­place. NFTs can be created, sold, and purchased. Other ways to earn money include art trading and trading col­lectibles.
• Trace­Do­nate: This DApp service uses crypto wallets to donate to charities.
• Minds: The social media DApp Minds uses open-source code and reliable user data en­cryp­tion.
• 1inch: A stock exchange DApp that can be used to split stock exchange trans­ac­tions and trade on multiple DEXs at optimal con­di­tions.
• Ipse: A de­cen­tral­ized search engine based on the In­ter­plan­e­tary File System and the EOS blockchain. Thanks to asym­met­ric en­cryp­tion, Ipse promises more anonymity and data pro­tec­tion.
• Pan­cakeswap: One of the largest de­cen­tral­ized exchanges for cryp­tocur­ren­cies that can be used as a DApp. It serves as an in­ter­me­di­ary platform for the exchange of BEP-20 tokens.