What is a DApp (De­cent­ral­ised Ap­plic­a­tion)?

A DApp is a de­cent­ral­ised, 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, de­cent­ral­ised Web3 Internet.

A closer look at DApps

The term DApp stands for ‘de­cent­ral­ised ap­plic­a­tion’. DApps are autonom­ous ap­plic­a­tions that don’t depend on company servers but instead use a de­cent­ral­ised 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 de­cent­ral­ised 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 de­cent­ral­ised 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 de­cent­ral­ised 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 de­cent­ral­ised apps are based on a block­chain. Block­chains use de­cent­ral­ised 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 de­cent­ral­ised, 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 de­cent­ral­ised 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 cent­ral­ised 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 de­cent­ral­ised, globally dis­trib­uted peer-to-peer networks.
• The basis of DApps is a de­cent­ral­ised backend, managed by users in a block­chain network.
• Com­mu­nic­a­tion in DApps doesn’t happen via the provider’s servers, but via a globally dis­trib­uted, de­cent­ral­ised 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 de­cent­ral­ised networks. And they already play an important role in trans­ac­tions within de­cent­ral­ised 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 de­cent­ral­ised 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 de­cent­ral­ised apps, let you browse DApps over block­chain networks, and provide an in­teg­rated wallet for crypto payments.
• Social networks: de­cent­ral­ised social networks like Leeroy are an al­tern­at­ive to cent­ral­ised 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 de­cent­ral­ised 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 de­cent­ral­ised 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 de­cent­ral­ised exchanges for crypto­cur­ren­cies that can be used as a DApp. It serves as an in­ter­me­di­ary platform for the exchange of BEP-20 tokens.