What Are Decentralized Applications?

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Contributor, Benzinga
January 3, 2022

Decentralized applications (DApps) are digital programs that promise to cut out the intermediaries — entities that control the information on a typical app — and run on a peer-to-peer (P2P) network or a blockchain. This means that the data cannot be controlled by a single person or an organization and the information must be public and transparent.

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How do Decentralized Applications Work?

DApps can be computer or mobile applications or a webpage that operate similar to other applications. Their data is not hosted on a single server but on a blockchain and uses crypto to keep the network secure. Once a DApp is live on a blockchain, usually, Ethereum but others have been in the forefront lately, its code cannot be changed, not even by the owner or creator because it is solidified on the written open-source code.

Types of DApps on Ethereum

There are more than 3,800 DApps in the DeFi ecosystem, of which over 2,900 are created on Ethereum, according to live data presented by the State of The DApps. DApps can fall into any category just like typical applications but with a key difference: decentralization. Here are the most common types of DApps on Ethereum:

  • Lending and Borrowing: DApps like Aave let you stake your assets for interest by lending your cryptocurrency. Other popular examples are Compound and Oasis with almost the same features for earning interest on lent tokens.
  • Token Swap: Uniswap, the most popular DApp, is a decentralized exchange (DEX) with a market cap of more than $15 billion. It’s the first permissionless DEX with a modern user interface (UI) for trading altcoins through a Web 3.0 wallet.
  • Digital art marketplaces: These markets let users buy, sell, trade, or even create non-fungible tokens (NFTs). Some notable names in this niche are OpenSea, Rarible and CryptoPunks.
  • Gaming: This category ranges from creating virtual worlds to battling other players to gambling using NFTs and tokens that have real-world value. Axie Infinity, The Sandbox and CryptoKitties are well-known in the industry.
  • Technology: The main focus is to expand decentralization while rewarding users. This category contains utilities like Ethereum Name Service (ENS), developer tools such as Golem and radical.xyz, browsers for example Brave and Opera, and more.

Cryptocurrency Airdrops

Many new startups use the airdrop marketing strategy to get extra coverage by distributing native ERC-20 tokens to users’ wallets. These tokens could be UNI for Uniswap or ENS for ENS domains, for example. Airdrops are usually done for free but they might sometimes ask for certain criteria like sharing on social media in exchange for crypto, but be wary of the many scams out there.

Many decentralized apps will give tokens out to anyone who uses the application. For instance, Metamask, a browser extension and token wallet, may be launching a token soon for those who use the swap feature within the wallet. According to Airdrops.io, users need to download and create a Metamask wallet and do a swap on all possible chains to qualify for the airdrop.

To qualify for Airdrops, you need to use ETH on dApps before they release tokens. To do so, buy Ethereum on a credited platform like Coinbase, Gemini or Voyager and transfer your Ether to your Metamask wallet.

How to Use Decentralized Applications

Every DApp has a certain way of using it with instructions provided on their websites. Here is a common step-by-step process to access most dApps:

  1. Download and register for a crypto wallet.
  2. Deposit or buy Ether (if on Ethereum) or SOL (if on Solana). 
  3. If you buy crypto from an exchange, send it to your Ethereum wallet. 
  4. Find a DApp from websites like dappradar.com or ethereum.org.
  5. Connect to the wallet and start using the DApp.

Pros of Using Decentralized Apps (dApps)

There are several compelling factors to the expansion of DApps:

  • Decentralization: Compared to centralized applications (CEXs), DApps are more reliable because their data is stored on a decentralized network. It’s almost impossible for individuals and companies to control or manipulate the network.
  • No downtime: DApps are built on top of a P2P network instead of a single server so they continue to operate even if some parts of the network go down.
  • Open-Source: All DApps are built with a transparent code that is available for anyone who desires to verify the developer’s claim on what it does.
  • Cost reduction: Unlike centralized applications, companies don’t need to set up expensive servers to host a DApp. No server means no need to hire experts to ensure its uptime.

Cons of Using Decentralized Apps (dApps)

With good comes bad. Some weaknesses come with dApps, such as:

  • Poor UI: There are still many challenges with creating a clean and user-friendly UI. It’s also one of the main reasons why DApps do not have many users worldwide. 
  • Updates: DApps are built in a complex environment, making it harder for developers to access their code. Less debugging, maintenance and updates create room for hackers to exploit their vulnerabilities.
  • Slow speed: Serving real-time data and retrieving the information from every node can sometimes slow down the overall speed of processing the payments, especially with high gas fees on Ethereum. As many are used to instantaneous and cheap results, this makes DApps less effective to use for them.

Centralized vs. Decentralized Crypto Apps

Centralized apps are less reliable overall since they are controlled by a person or organization, usually collecting users’ personal data without consent. This is one of the main problems that DApps are seeking to fix by the execution of an open-source code. 

On the other hand, most traditional applications operate faster than DApps, thanks to their dedicated servers. However, DApps allow users to make transactions with each other without relying on a central authority. 

DApps are still in the early stages and it’s hard to tell if they’ll scale with their competitors. They have evolved but are still young and have a lot of room for improvement. With the growing number of users, DApps have innovative uses from gaming and exchanging tokens to governance of decentralized ecosystems — all of which show the bright future of DeFi.

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