Learn Cryptocurrency
7 Jan 2022

Decentralised Applications (dApps): Explanation and Real-World Utility

Devansh Sinhal

What are dApps?

Decentralised applications are programs that make it possible for people to interact with each other without the involvement of third parties. These interactions could include financial transactions or legal communication, all of which traditionally rely on third parties to get the work done. dApps are helpful in this perspective because instead of depending on the competence and trustworthiness of third parties, they use solid code and a layer of computers to enforce contracts and agreements.

For example, if you were to buy a house through traditional channels, you’d end up paying thousands of rupees in fees to brokers, agents, and the government. Through dApps, the transfer of real estate is smooth and efficient. It does not involve anyone except the seller and the buyer, removing the middleman and their commissions.

dApps can be thought of as a more advanced version of regular apps, the kind that allows you to have complete control over your transactions. Without Big Brother watching you every single minute, dApps give you the personal freedom to interact with a peer without being held accountable for it. These programs don’t require your personal information to work either.

Key Takeaways

  • Decentralised applications are programs that make it possible for people to interact with each other without the involvement of third parties.
  • Most dApps are made on the Ethereum blockchain.
  • While development on dApps is still ongoing and the network is undertaking a significant overhaul, several promising prospects like UniSwap and MakerDAO already have the spotlight.

Foundation Behind dApps

dApps are an application of the blockchain and cryptocurrencies. They use blockchain technology and cryptocurrencies to hold parties accountable for their agreements. No single authority controls them; users and providers can interact directly without trusting an intermediary with their private banking or personal information.

Just like phone companies eventually grew out of having operators to connect phone calls, dApps are the newer, more seamless version of phone calls; they don’t need a third party to connect you to the other person and are much faster too.

Most dApps are made on the Ethereum blockchain, a network that allows developers to create decentralised apps for gaming, finance, and social media. Decentralised applications work on the same principle as cryptocurrencies and DeFi. They allow parties to stay responsible to each other on a P2P basis. 

Cryptocurrency tokens or coins are often used to enforce these rules and reward participants who contribute to the network’s security. People engage in the network of these apps individually, free from the influence of any single authority. 

Here are some critical characteristics of decentralised apps:

  • They exist and run on a blockchain network powered by smart contracts.
  • These smart contracts are open-source pieces of code created by a decentralised authority, and no individual authority controls them.
  • dApps are powered by individual tokens based on the blockchain.
  • Users who interact efficiently with the ecosystem get rewarded using the native tokens of the dApp.

dApps utilise a public ledger to store all transactions on a network whose history is available to all network participants. All users, hence, must have a wallet with the dApp they’re using and contain a variable minimum balance of the token relating to that specific blockchain. Most dApps are constructed on the Ethereum blockchain and hence use ETH.

For instance, if you’re using MakerDAO to borrow or lend cryptocurrencies, you must have some DAI in your wallet to interact with the platform in some way.

How Are dApps Different From Regular Applications?

Ideally, dApps should not feel any different from regular applications and should operate as smoothly and efficiently as any other web or mobile application. However, they are different from traditional applications in a large capacity.

Let’s explore the differences between dApps and regular applications.

Regular apps Decentralised Apps (dApps)
The user interacts with a traditional program or code designed by a third party. The user interacts with smart contracts based on the blockchain in the backend.
The backend consists of centralised servers controlled by a specific authority. These are hosted on multiple systems worldwide without central oversight.
Lower computing power than dApps. It has a higher computing power than regular apps.
Less secure and more vulnerable to cyber-attacks. Less vulnerable to cyber attacks due to the security of the blockchain.
It does not work if servers go down or are under maintenance. Continue to function normally even when some network nodes go offline.

Advantages and disadvantages

Here are some benefits of dApps:

  • dApps secure user privacy. They do not require engaging parties to submit personal information to centralised servers to function. They use smart contracts to complete the transaction nevertheless. 
  • Provides the infrastructure required to create innovative digital solutions for modern-day problems. These could include banking and finance, social media, e-commerce, and gaming.

However, all is not good about decentralised apps as well. Here are some prominent disadvantages:

  • dApps, like other blockchain technology applications, are applications of blockchain technology, are still in their early stages. Hence, most applications developed on this network are mainly experimental and vulnerable to bugs and errors.
  • Ethereum is a PoW blockchain with high gas fees and even higher transaction times. For dApps to scale and actually be helpful, Ethereum needs to remove efficiency roadblocks and become more accessible to people.
  • dApps are hyper-focused on improving critical aspects like security and efficiency while neglecting the end-user experience. In the long run, this could affect their penetration rate in the digital world and the speed with which people adopt these technologies in everyday life.

Future Prospects

While development on dApps is still ongoing and the network is undertaking a significant overhaul, several promising prospects already have the spotlight. These apps are heralding the future of decentralised applications and are doing an arguably good job at it.

Here are some of the best-decentralised applications in the crypto world today.

Uniswap

Uniswap is a decentralised exchange that converts ERC-20 tokens based on a pool feature where users can provide liquidity to the exchange in return for a small commission. Users deposit tokens into a smart contract – providing liquidity – and get pool tokens in return.

Uniswap is a significant player in the decentralised exchange space and regularly clocks over $8 billion in daily trading volume.

MakerDAO

MakerDAO is a cryptocurrency lending platform that runs on its own digital token called DAI. The exchange allows users to lend and borrow crypto without an intermediary. Users on MakerDAO do not have to register their details through KYC, keeping their personal information secure during hacks.

MakerDAO is one of the only players in the cryptocurrency-lending arena that’s hit the $2 billion mark in asset ownership. The platform also reported a 674% year-over-year growth rate last year, making it one of the fastest-growing names in the crypto space.

Conclusion

dApps are perhaps one of the most promising applications of cryptocurrencies ever. They allow people to engage with each other in genuinely decentralised environments, removing the need for intermediaries and middlemen. As a result, financial institutions can make transactions cheaper, faster, and easier for everyone. Social media platforms supported on dApps could do away with biased censorship and make the internet a safer place for everyone.

The potential of decentralised apps in today’s world is unparalleled when we recognise the need to protect our privacy, keep our personal information secure, and create a P2P culture in every aspect of our digital lives. With more development and research, the day when dApps replace regular apps ultimately is not too far away.

Disclaimer : Crypto products and NFTs are unregulated and can be highly risky. There may be no regulatory recourse for any loss from such transactions. The information provided in this post is not to be considered as investment/financial advice from CoinSwitch. Any action taken upon the information shall be at user's own risk.

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Devansh Sinhal

Content Writer

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