Everything decentralized is in vogue in 2022. Blockchain and decentralized services remain among the top Google Trends and spark up discussions around the globe. DApps, or decentralized applications, take a privileged place in debates, being one of the pillars of decentralization.
According to the State of Dapps, the market has welcomed over 4000 decentralized applications with over 110K of daily active users. Axie Infinity, Katana, and OpenSea have reeled in thousands of users and are growing in leaps and bounds. So, it’s no surprise that dApps are a bankable opportunity for investors and companies alike. But what is a dApp?
Today, we’ll go over the fundamentals of decentralized applications and see whether it’s a worthwhile investment for the years to come.
What are dApps?
The majority of your staple apps like Instagram or Google Docs share the same basic structure. There is a client application on your device, while the server is premised somewhere on the central system.
Regardless of your app type, local client applications synchronize your data with the central system, thus transmitting critical information to the central server that has full control over your data
Unlike traditional apps, a decentralized application is built on a decentralized network that combines a smart contract and a front-end user interface.
From the end-user perspective, dApps look almost identical to a standard mobile app. Yet, the core difference is that all data and the backend are not stored centrally on a server. It means that no centralized entity exercises authority or control over your data or in-app moves.
Under the hood of decentralization
So how do dApps work? Any decentralized application is made up of back-end code that runs on a peer-to-peer network.
A user interface can also be established by a front-end code that makes calls to the back end in a dApp. Therefore, dApps users interact with the back-end code, i.e. smart contracts to invoke the app’s functions.
Being used as the back-end, smart apps are programs that run when predefined conditions are met. Thus, they automate transactions and verify when parties fulfill the terms.
Among other main differentiators of dApps are the following:
- Open source code that runs autonomously and no entity has control over most tokens;
- dApps generate tokens to reward participating nodes;
- dApps are accessed through tokens;
- Miners receive tokens as a reward for significant contributions to the ecosystem.
Decentralized applications and Ethereum
Being one of the largest blockchain platforms, Ethereum is home to the majority of dApps. Essentially, it is an application development platform built on decentralized blockchain technology. Since it’s the main platform to accommodate smart contracts, Ethereum is most often associated with decentralized services. Therefore, it is the go-to platform for building dApps since it already offers a variety of tools for dApp development.
Main applications of dApps
Unlike most tech innovations with merely theoretical uses, decentralized applications have already bloomed into practical and widely used services. Let’s have a look at the most popular ones.
Decentralized finance
The intermediary-free financial ecosystem has long been an unattainable undertaking. However, smart contracts and blockchain have initiated DeFi solutions that now account for an estimated $12.7 billion of blockchain market value. Here, decentralized applications step out as a client-facing interface that allows users to communicate with a particular DeFi service, be it lending or exchange markets.
Non-fungible tokens
Just like with DeFi, dApps incorporate the use of NFTs into software applications. Non-fungible tokens can be used to represent different types of underlying assets. These can include physical objects, art, and others.
For example, OpenSea, which is the world’s largest NFT marketplace, boasts an unrivaled selection of assets for purchase and caters to over 80 million NFTs. Axie Infinity is another prominent example of an NFT solution. This NFT game invites users to a digital pet community where they can explore, breed, and buy Axies.
Communication
Another widespread application of dApps is their presence in the social media ecosystem. While traditional social networks grant little to no control to their users, dApps communication platforms return more user enablement and provide more control over user data. Minds is a decentralized Facebook alternative that enables users to post content and exchange secure messages with other network members.
Crypto wallets
This type of application stores users’ private keys. The latter are unique digital codes that facilitate cryptocurrency transactions. Crypto wallets differ greatly, with the most popular ones being hosted wallets, non-custodial wallets, and hardware wallets. Exodus is a popular multi-asset crypto wallet that enables users to buy, trade, and earn interest via an easy-to-use interface.
Main downsides of dApps
Along with added value such as decentralization and security, decentralized applications come with a few disadvantages.
Due to their immutability, dApps are harder to maintain. It means that once your dApps are on the mainnet, it’s hard to update or fix a bug. The high costs and complexity of use are among other cons that scare off new users and investors.
Moreover, the UX of dApps is challenging to create due to in-app design requirements and the lack of expertise among UX/UI designers. Unlike traditional mobile and web applications, decentralized ones come with different requirements for user experience, which makes design a challenging and uncharted field.
Finally, network congestion takes a toll on the performance and speed of dApps. The current processing speed of DApp networks amounts to 10-15 transactions per second. If one application gobbles excessive computational resources, it affects the entire network.
However, the majority of these downsides can be eliminated as the dApp ecosystem matures. Therefore, the disruptive potential of decentralized applications shines brighter than their cons.
The Final Word
Dapps will continue to grow at an exponential rate in the coming years. Even if a fully decentralized utopia is unlikely to materialize very soon, the year 2022 is projected to witness significant improvements and the spread of blockchain technology and its applications.
In particular, decentralized applications are uniquely positioned to support censorship resistance and return more control over their content to users. However, dApps are still haunted by a number of disadvantages that stem from the immaturity of the network. As decentralization gains traction, we’ll see the full potential of blockchain-based solutions.